Private capital expenditure on machinery and equipment

IBISWorld forecasts private capital expenditure on machinery and equipment to inch upwards by 0.5% in 2025-26 to $16.86 billion. This expansion reflects businesses expanding their operations and investing in new equipment, thanks to a lower cost of borrowing from successive cash rate cuts by the Reserve Bank of New Zealand up to November 2025, when the cash rate declined from 5.5% to 2.25%. These recent interest rate cuts have also spurred stronger demand conditions for some firms, further encouraging investment. However, persistent labour shortages have made some companies more hesitant with large-scale capital upgrades.

The government has played a crucial role in encouraging private investment in machinery and equipment through policies like tax incentives, grants and infrastructure development. For example, New Zealand's R&D tax incentive offers a 15% tax credit on eligible R&D expenditures up to $120 million, which took effect from the beginning of the 2020 tax year, has been helping spur investment in new machinery and equipment. This was also supplemented by other government R&D programs, like the New to R&D co-funding program for small-to-medium enterprises which commenced in 2024-25.

Since 2020-21, private capital investment has been recovering from the period of intense uncertainty experienced during the COVID-19 pandemic. As supply chains normalised, businesses moved quickly in 2022-23 to undertake large-scale capital upgrades, catching up on projects deferred in earlier years. When input inflationary pressures intensified and consumer sentiment weakened, firms pulled back on spending, driving the sharp fall in investment recorded in 2023-24. Despite this setback, private capital expenditure on machinery and equipment has still risen to sit above its 2020-21 level. Overall, IBISWorld forecasts private capital expenditure on machinery and equipment to grow at a compound annual rate of 2.1% over the five years through 2025-26.