NZ business confidence fell sharply in Q1 as Hormuz disruptions lifted uncertainty. Activity held steady but hiring and investment weakened. Inflation pressures remain contained, with RBNZ still expected to begin tightening later this year.New Zealand Q1 business confidence -4% vs 48% priorNew Zealand Q1 capacity utilisation 91.2% vs 89.8% priorSummary:Business confidence slumps sharply to near-flat levelsActivity stabilises but remains weakHiring and investment intentions turn negativeConstruction sector weakest; manufacturing more resilientInflation pressures contained but uncertainty risingRBNZ still expected to begin tightening cycle around JulyNew Zealand business confidence deteriorated sharply in the March quarter, with the latest NZIER Quarterly Survey of Business Opinion highlighting growing caution among firms as geopolitical tensions and energy disruptions weigh on the outlook. A net 1% of firms now expect an improvement in economic conditions, down steeply from 39% in the prior quarter, pointing to a rapid loss of momentum in sentiment. The survey period coincided with escalating conflict in the Middle East and disruptions to shipping through the Strait of Hormuz, which have driven higher fuel costs and increased uncertainty across global supply chains.Despite the sharp drop in confidence, activity indicators were more resilient. Firms reported broadly flat trading conditions in their own businesses, suggesting the domestic economy is stabilising, albeit at subdued levels. However, forward-looking indicators paint a weaker picture, with firms pulling back on hiring and investment plans. A net 9% reduced staff in the quarter, and investment intentions for both buildings and machinery turned negative.Sector performance was uneven. Construction was the weakest area, with demand softening and profitability deteriorating amid rising costs and reduced pricing power. In contrast, manufacturing remained relatively upbeat, supported by export demand, while retail showed tentative improvement in sales despite ongoing margin pressure.Cost and pricing indicators suggest inflation pressures remain contained for now, even as fuel-driven cost shocks begin to filter through. While more firms reported raising prices, overall cost pressures were broadly steady, indicating limited immediate pass-through.Looking ahead, the survey highlights rising uncertainty tied to geopolitical risks and domestic political developments, including the upcoming election. While inflation risks from energy disruptions are seen as modest at this stage, policymakers will be closely monitoring forward-looking price indicators.The results reinforce expectations that the Reserve Bank of New Zealand will begin tightening policy later this year, with July pencilled in as a potential starting point for rate hikes, contingent on inflation expectations and the persistence of cost pressures. --The report presents a mixed signal for policy. Weak confidence and soft forward indicators argue for caution, but stable inflation pressures keep tightening expectations intact. Markets are likely to continue pricing a gradual RBNZ hiking cycle, with growth risks limiting the pace of tightening and capping NZD upside. This article was written by Eamonn Sheridan at investinglive.com.