29th October, 2018

NZ economy rosy, business confidence less so

The New Zealand economy is swimming along nicely, but business confidence is now at its lowest point since the GFC – why?

According to the latest stats from Stats NZ, the unemployment rate is a healthy 4.5 percent while the country’s GDP annual growth is still at a respectable 2.7 percent (although it has been higher).

These are generally signs that things are going well, but the small business community is telling a very different story.

Its seeing revenues dive to the worst point since the GFC, and it’s pointing its finger squarely at the Ardern coalition government.

Revenue dives

According to the latest MYOB Business Monitor Snapshot, over a quarter of small business operators said that their revenue had fallen over the last 12 months.

Forty-seven percent said that revenue had remained flat, meaning just 28 percent said revenue had grown.

This contrasts with the previous survey, done in September last year, which indicated that 37 percent saw their annual revenue increase and 18 percent recorded a fall.

This makes it the worst performance since the GFC – and businesses aren’t all that confident things will turn around soon.

Just 27 percent expect revenue to be up over the next year (compared to 46 percent last year) and 29 percent expected revenue to fall.

While the picture is rosier for larger companies, MYOB General Manager Carolyn Luey said the results should be taken seriously – despite the background of rosy economic growth.

“We should take these signs seriously,” she said. “Clearly business operators are now factoring in not only tougher economic conditions, but also a tightening of their own finances.”

“This will have a flow-on effect throughout the economy, from hiring and investment, to payment and purchase arrangements with fellow businesses.”

Where we’re hurting

According to the survey, the worst-performing sector was the construction and trades sector, with 47 percent of businesses there recording a revenue drop.

Retail and hospitality was also hit hard, with 33 percent of businesses recording revenue drops.

The picture was rosier for the manufacturing sector, with 53 percent reporting year-on-year revenue gains with the finance and insurance industry also buoyant, with 64 percent saying their revenue grew and just 9 percent seeing a decline.

A third of SME operators in both Auckland and Christchurch saw revenue fall, while 19 percent of business operators in Auckland reported gains and just 15 percent in Christchurch had improved revenue.

Auckland-based businesses are expecting the declining revenue trend to deepen next year, with 38 percent of operators forecasting a revenue fall in 2019, compared to 33 percent in Christchurch and 25 percent in Wellington – the only main centre where revenue gains (31 percent) are expected to outstrip falls.

Small businesses that have seen their revenue drop have a theory about why it’s dropping, despite a strong economy overall: the government.

Ardern government blamed

Roughly half of respondents attributed low levels of business growth to the uncertainty created by the performance and policies of the new coalition government, while 39 percent said it was likely down to external factors like fuel price and trade concerns.

When asked about the government’s overall performance since the election, 42 percent say they are dissatisfied, with 12 percent saying they are very dissatisfied.

Less than a third (31 percent) say they are satisfied with the government’s activities since October last year.

Luey said the coalition had failed to provide business certainty over legislation since it came to power.

“Kiwi businesses, particularly those on the smaller end of the scale, rely on a clear understanding of the impacts of government policy to make important investment decisions like hiring new staff, improving infrastructure and acquiring new plant and equipment,” she said.

“However, policy changes and uncertainty around things like tax, regulations, government spending and employment law only puts more pressure on business owners who are becoming increasingly cautious about investing and under greater financial pressure.”

Sixty-one percent of respondents said concerns around levels of tax were causing them sleepless nights, while 45 percent said the minimum wage increase was having an impact, while the introduction of a capital gains tax made 43 percent of respondents nervous.

The level of tax is the most concerning for the transport and storage sector (83 percent), the primary industries (80 percent), and the retail and hospitality sector (70 percent).

Luey said the coalition government will need to demonstrate its commitment to the business community if it wants to rebuild the sector’s confidence in the economy.

“The government must improve its transparency around things like taxation changes, employment law and government spending – if it wants the support of New Zealand businesses,” she said.