Confidence in the economy has fallen to its lowest level in three years amongst New Zealand’s small-to-medium sized enterprises (SMEs), according to the latest MYOB Business Monitor survey of more than 1,000 business operators around the country.
Expectations for the economy fell from an overall net positive 21 percent in the March 2017 Monitor, to a net negative 14 percent in the latest survey. This is despite businesses continuing to report strong levels of revenue growth over the last 12 months and positive earnings expectations for the coming year.
But Steven Farrant, chair of the Tauranga Chamber of Commerce’s Small Business Tauranga group, said he wouldn’t equate a drop in confidence to a risk.
“As we know there has been significant change in the country recently, and change often creates uncertainty, which can lead to owners taking a more cautious approach to business,” he said.
“Although SME owners and operators are very mindful and acutely aware of the economic climate, there is a danger that a pessimistic outlook isn’t healthy or helpful. As a result, from my experience, SME owners/operators focus their energy on the day job of running their business.”
The survey said businesses in the primary sector were most likely to predict the economy to decline, with over half of the operators in the industry (52 percent) pessimistic about the coming year. Manufacturing and wholesale business operators were also concerned about a fall-off in the economy, with 41 percent expecting a decline. Construction and trades business operators are only slightly more optimistic, with 38 percent expecting the economy to decline, while 26 percent predict it will improve.
However, despite expressing a significant level of concern over the future of the economy, 36 percent of businesses reported an improvement in revenue in the last 12 months, the same level as 2017. And there was only a slight decline from the highest level recorded in the Monitor survey in 2016 (37 percent). One fifth (20 percent) reported a fall in revenue levels in the last 12 months.
Most business operators were also forecasting their revenue would improve or remain at current levels over the next 12 months, with 38 percent expecting revenue to rise (the same proportion as in 2017) and 41 percent predicting their income will remain the same.
MYOB general manager Carolyn Luey said that while businesses were right to express some caution, as the international situation in particular is increasingly uncertain, there was a risk that the growing levels of pessimism could affect the economy.
“The fundamentals of the SME economy at present are strong – businesses in general are doing very well, and most expect that performance to continue over the next 12 months,” she said.
“While there are some areas to watch – such as the decline in manufacturing sector earnings and lower levels of revenue growth for the primary sector – the overall sector is in good shape.”
Luey said the level of uncertainty around the policies and direction of the new government had been well canvassed in recent surveys.
“But other concerns, such as a looming international trade war, global instability and, closer to home, the range of new taxes being mooted by the tax working group – all of which were covered during the survey period – are likely to be factoring into how well business operators believe the New Zealand economy will perform.”
Small Business Tauranga’s Farrant said it was worth noting that SMEs could and did adjust and adapt to market changes quickly and often effectively.
“The report also points out the underlying performance and revenue expectations within the SME sector remain strong,” he said. “I believe the survey reflects a period of change and the air of caution that brings, but I expect our sector to continue to perform well over the next 12 months.”