It's been years of recession, redundancies, tightening belts and cutting costs. But as we firmly settle into the second half of the year, there’s an air of positivity. ANZ’s latest business outlook survey painted a glowing picture, with business confidence soaring to its highest level in a decade.

The results found 50% of respondents expected the economy to improve over the year ahead — compared to 27.1% in July. So have we hit rock bottom, and is it only up from here? Kiwibank Senior Economist Mary Jo Vergara says right now we’re in the thick of it.

“We're saying that it's always darkest before the dawn, but I think we're seeing the dawn approach.”

Vergara says you’d be forgiven for thinking the economic slump has dragged on, because we’ve been in recession since late 2022.

“Our slice of the economic pie has been shrinking since late 2022, and it almost felt like we've had whiplash going through so many cycles. We always go through cycles, but this time they've been quite condensed.”

“We had covid, so that was a major drop, and then we came out of it with a lot of stimulus, so that was a major high with an overheated economy. We then saw an aggressive rate hiking cycle, so that dropped our economy down. So we’ve really been through a lot over the past four years.”

Things also hit a lot harder than the GFC.

“On a per capita basis, in terms of cumulative drop, it's deeper than the GFC. During the GFC, the cumulative drop to GDP on a per capita basis was something like 2.8%, we're now down closer to 4%.”

But while dawn might be approaching, with confidence building, it's thought that it could still take some time to materialise into growth.

“The data prints, especially for economic activity will still paint quite a bad picture. I think those numbers will still be ugly, as we're still expecting the economy to be growing below trend.”

“But if we're thinking about this time next year and the years beyond, it should be a much better outlook.”

But it could still take some time, even after the long-anticipated cut to OCR.

“I don't think the boost to business confidence was just the August cut itself, it’s actually the notion that there'll be more cuts to come. That's what households and businesses have been waiting for, and they know that the August cut is the gift that will keep on giving.”

Vergara says the 25-basis point cut won’t move the dial too much, but once we reach a cash rate of around 4 percent that’s when Vergara expects we’ll start to see economic growth materialise.

“Confidence is your lead indicator. It usually comes first, and then when we’re feeling a bit better about things and the outlook is looking a lot better, then we’ll start to see a pickup in activity.”

WHERE WAS HARDEST HIT?

Vergara says one of the hardest hit regions during the downturn has been Wellington.

“Last month our regional report revealed that every region slightly improved apart from the capital, which is no surprise, given that public sector job cuts were really concentrated in that area.”

“All the indicators we looked at, like the labour market, housing market and retail activity actually stayed unchanged at a very low level of two out of ten.”

On the other side of the coin, Vergara says that Southland was the brightest out of all of the regions.

“I think it's because they had this big residential building boom, and that lifted their entire regional economy.”

When it comes to industry, construction and retail have been feeling the pinch the most.

“They’re industries that are very cyclical in nature already. Retail is doing it tough, given the pullback in consumer spending, and for construction there's just been no movement in terms of consents and building activity.”

“So many companies are just running through their pipeline, and there's no actual real activity coming through. They've also been hit pretty hard as construction costs spike the most as well.”

WHAT WILL NEXT YEAR LOOK LIKE?

Vergara expects the second half of next year to be when things really start to pick up as the OCR continues to come down.

“We always focus on how many times they'll cut once they decide to cut the first time, and we always said that it's a 12-step move, so there’s 11 rate cuts to come which is 275 basis points.”

“From there we’ll see the cash rate go into stimulatory environments below neutral. Overall the great news is there’s a lot of rate relief to come.”

Vergara says as we move into next year, there’s likely to be a lot more optimism.

“In terms of that translating to more activity, it's probably the second half of the year and going into 2026 where that meaningful drop in interest rates actually starts to translate into more activity.”

“We’ll be looking at those investment intentions indicators, hiring and pensions indicators as well, just to see where we're headed.”