SME confidence in economic performance still cautious

03 May 2021

New Zealand’s SME sector is still cautious about the potential for further economic recovery this year, with nearly half of SMEs expecting the economy to decline this year, according to the 2021 MYOB Business Monitor.

The nationwide survey of over 1,000 SME owners and decision makers – now in its 12th year – revealed that 41% of SMEs believe New Zealand’s economy will decline this year, with 10% expecting it will do so significantly. In comparison, just over a third (34%) of SMEs are more hopeful, expecting conditions to improve, while 23% expect the economy to remain the same.

MYOB SME Senior Sales Manager – Krissy Sadler-Bridge, says although the current operating environment is vastly different to this time last year, when 79% of SMEs said they believed the economy would decline in the next 12 months (seeing confidence reach a record low), the ongoing impact of COVID-19 continues to be of concern.

“More than a third of businesses are more optimistic about the performance of New Zealand’s economy this year – even overtaking 2019 confidence levels – and while this is certainly encouraging, there are a number of factors still weighing on the confidence of our local SMEs as they look to navigate the months ahead,” explains Krissy.

Predictions for the New Zealand economy for the next 12 months – a comparison:

  • 2021 – 34% of SMEs believe the economy will improve, 41% expect it will decline, 23% expect it will remain the same
  • 2020 – 8% of SMEs believed the economy would improve, 79% expected it would decline, 12% expected it would remain the same
  •  2019 – 19% of SMEs believed the economy would improve, 28% expected it would decline, 30% expected it would remain the same.

Key sectors more pessimistic than average

The latest Business Monitor insights revealed that the transport and logistics sector (50% of which believe the economy will decline this year), manufacturing and wholesale (48%) and finance and insurance (45%) are less confident about the potential performance of the economy, than the SME average.

After a tough 12 months, pessimism is also naturally slightly higher amongst hard-hit tourism businesses (44%), however positivity in this industry is on par with the overall SME average, with 34% believing the economy will improve.

In what could be seen to be a reflection of their strength and resilience, operators in the retail and hospitality sector are the most positive about the economy, with 40% expecting the economy to improve this year.

“The ongoing impacts of the international disruption caused by the pandemic, particularly to global supply chains, could be having a longer-term influence over confidence in our economy – especially for industries like the transport and logistics sector which relies heavily on global trade,” says Krissy Sadler-Bridge.

“However, we are seeing encouraging confidence levels in sectors, like retail and hospitality, which have also had to negotiate some of the most complex trading conditions over the last year – and with the establishment of a new travel bubble with Australia, SMEs now have another cause for hope.”

COVID-19 vs Confidence

In terms of what’s having the biggest influence on confidence, while COVID-19 is undoubtedly the biggest challenge facing SMEs, the new research highlighted a number of other local and international issues concerning businesses.

According to the 2021 Business Monitor, when thinking about their view of the economy for 2021, local factors that SMEs said were having the biggest impact on their confidence levels, included:

  • COVID-19 pandemic (59%)
  • COVID-19 vaccine roll-out (34%)
  • Consumer confidence (33%)
  • Median house prices (31%)
  • Low interest rates (29%).

In comparison, the international factors that they said were having the biggest impact on their confidence levels, included:  

  • Illness/epidemic (i.e. COVID-19) (59%)
  • Border restrictions impacting trade (56%)
  • The potential for a global recession (42%)
  • International relations issues with China (26%)
  • Climate change (19%).

Looking back to early 2020, the local factors having the biggest impact on SMEs confidence were: time and cost of compliance (28%), health and safety regulations (27%) and the exchange rate/value of the New Zealand dollar (24%). When considering international factors affecting confidence during the last Business Monitor survey, almost two-thirds (65%) of SMEs were concerned about illness/epidemic (i.e. COVID-19), and 46% were concerned about a global recession – both of which top the list again in 2021.

Challenges linger ahead

“Local small business operators have a good deal to contend with – not only in terms of the immediate effect of COVID-19, but also continuing to navigate an environment filled with uncertainty and its attendant risks of ongoing business disruption,” explains Krissy.

“Our latest Business Monitor insights have shown that in addition to the broader factors at play, New Zealand’s SMEs expect their most significant challenges this year to be the risk of disruption due to further lockdowns (42%), maintaining a steady revenue (33%), and consumer demand and confidence (29%).

“It’s clear that SMEs believe we’re not out of the woods yet when it comes to COVID-19 – the impact of which continues to be deeply felt in their day-to-day operations. We’ve all seen first-hand how many have made significant digital adjustments to their businesses to cope with change, and now it’s crucial that we continue to support their efforts to do so further. Not only to boost wavering confidence, but to help them survive and succeed when the time comes to take advantage of eventual economic recovery,” Krissy adds.