Business activity in New Zealand fell in the third quarter as domestic demand remained weak, despite business confidence reaching its highest level since 2014.

Businesses plan to increase investment and hiring in the coming months, according to the New Zealand Institute of Economic Research’s (NZIER) Quarterly Survey of Business Opinion.

Cost and price pressures eased during the quarter, but business activity improved only slightly from the previous quarter. Businesses also reported greater difficulty finding skilled and unskilled workers, suggesting that labour demand is growing. This comes as New Zealand’s unemployment rate stands at 5.6 per cent.

Although risks remain, NZIER expects demand to drive an improvement in economic activity in the fourth quarter, with growth continuing next year. The housing market continues to weigh on the economy, while fuel prices add pressure to household budgets.

The prospect of interest rate increases and uncertainty in overseas markets could also constrain the recovery. The institute expects tourism to support activity over the summer and the economy to pick up following the election. However, the recovery will depend on whether demand meets business expectations.

In the US, the trade deficit increased by 13.7 per cent in August as imports grew faster than exports. Imports rose by 4.3 per cent, driven mainly by capital goods, including semiconductors linked to the expansion of the AI industry. Exports increased by 1.4 per cent, widening the monthly trade deficit to $188 billion.

The dollar’s role as the world’s reserve currency and the liquidity of US financial markets attract international capital. Demand for American assets supports its value, making exports more expensive for overseas buyers. These capital inflows also allow the country to sustain trade deficits more easily than many other economies.

• Further reading: ‘Significant lift’ in consumer confidence needed before Christmas.