Key points in this issue
The construction recovery appears to be thrown off track by the US-Israel-Iran war in recent months, as US-Israel air and missile strikes on Iran at the end of February sparked retaliatory measures including restrictions through the Strait of Hormuz. The resultant surge in fuel prices and supply chain disruptions has intensified cost pressures for firms. This has been particularly pertinent in the construction sector, given the sector’s exposure to transport costs and imported materials.
Soft construction pipeline weighs on recovery
Building Work Put in Place showed construction activity fell in the first quarter of 2026, driven by a decline in both residential and non-residential construction. Recent indicators of building activity have been mixed but, overall, suggest a soft construction pipeline.
"Recent indicators of building activity have been mixed but, overall, suggest a soft construction pipeline."
Building sector now the most pessimistic as cost pressures bite
Sentiment in the building sector has deteriorated as the fuel crisis escalated, with firms in the sector now feeling downbeat about economic conditions ahead. A net 28 percent of building sector firms expected a worsening in the general economic outlook in the March quarter, a turnaround from the net 54 percent feeling optimistic in the previous quarter.
Pricing power remains weak in the building sector
Building sector cost and pricing indicators in the NZIER Quarterly Survey of Business Opinion (QSBO) suggest weak construction demand continued to weigh on pricing power in the sector. Although over 70 percent of building sector firms reported facing higher costs in the March quarter, a quarter of firms cut prices. This is negatively impacting operating margins in the building sector.
A net
of building sector firms expected a worsening in the general economic outlook in the March quarter
Outlook
The unfolding fuel crisis over recent months appears to have weighed on the construction recovery, as increased caution towards spending and investment has led to slower growth. Even before the start of the US-Israel-Iran war, the construction recovery had been fragile and patchy across New Zealand’s regions. Increased caution will likely reduce private-sector construction demand, while inflation from the surge in fuel prices has brought forward the expected timing of interest rate increases.
News that the US and Iran had agreed to a peace deal in mid-June buoyed markets, but there is significant uncertainty over whether the conflict has ended and whether this changes our economic outlook relative to before the peace deal was announced. Even once the Strait of Hormuz is reopened, it will take some months before supply chain disruptions are resolved.
"News that the US and Iran had agreed to a peace deal in mid-June buoyed markets, but there is significant uncertainty over whether the conflict has ended and whether this changes our economic outlook relative to before the peace deal was announced."
With market expectations that the Reserve Bank of New Zealand (RBNZ) will commence its tightening cycle by raising the Official Cash Rate (OCR) in the coming months, higher interest rates present a further headwind to the construction recovery.
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Forecast 116
Prepared by the New Zealand Institute of Economic Research (Inc.) exclusively for Rider Levett Bucknall, Forecast is produced quarterly and provides detailed local construction market intelligence and knowledge.
Construction Market Intelligence
Forecast is supplemented by Rider Levett Bucknall’s construction market intelligence publication, the Australia Construction Market Update and other country specific reports providing timely snapshots of market conditions and construction cost movements around the world, via commentaries from Rider Levett Bucknall
Disclaimer: While the information in this publication is believed to be correct at the time of publishing, no responsibility is accepted for its accuracy. Persons desiring to utilise any information appearing in the publication should verify its applicability to their specific circumstances. Cost information in this publication is indicative and for general guidance only and is based on rates as at June 2026. National statistics are derived from the Statistics New Zealand.