NZ business confidence stays ahead of world average
Business confidence in New Zealand is well up on the global average but it has still fallen by 20% in the last quarter, according to the latest research from Grant Thornton’s International Business Report (IBR).
New Zealand business confidence in the third quarter (July-September) was at 32% compared with a global average of 3%. This compares with the second quarter figure of 52% for New Zealand and a 31% global average.
Peter Sherwin, Partner Grant Thornton New Zealand, based in Wellington, said that the pandemic collapse in business optimism during the third quarter of 2011 was felt in New Zealand, but not to the extent of other countries, especially Finland where confidence levels went from +56% to -42% in one quarter.
“Ominously, this uncertainty has also spread to key emerging markets with both China and India seeing net optimism decline by 29 percentage points. The optimism of business owners in mature markets has also been hit particularly hard. In North America optimism has dropped from 43% to 3%, in the EU from 34% to 0% and in the United Kingdom from -1% to -22%.
“Australia still sits behind New Zealand in confidence at 28%, which is actually a slight increase from 26% in the second quarter,” he said.
Sherwin said that the drop in confidence in New Zealand was best illustrated in the demand for skilled workers where pressure had actually dropped.
“Between the second and third quarters there was a fall of 12% in companies who thought that a shortage of skilled workers would be a problem. This was reinforced by an 11% increase in the number of businesses struggling with falling orders. Companies with a lack of working capital also increased by 14%.
“The good news for employees is that 64% of companies surveyed intend increasing wages by inflation and 14% by amounts above inflation. In the last quarter 20% of companies increased employees compared with only 2% in the previous quarter,” he said.
The survey indicated that global figures are the worst since 2009, when we were in the midst of the global recession. The worrying thing is that negative sentiment about the wider economy is now damaging business growth prospects.
“Businesses are telling us they feel they have no control over how things are going to turn out. There’s a perception that attempts to create stability and stimulate growth just haven’t worked. An economic outlook that appeared to be improving just three months ago has been replaced with one of total uncertainty.”
The prospect of businesses driving growth is being constrained by the on-going uncertainty, especially in many mature markets where governments and consumers are reigning in spending. Globally, business expectations for employment, revenue and profits have fallen by 11, 10 and 9 percentage points respectively. Moreover, a shortage of demand is now the single biggest constraint on growth facing businesses around the world, cited by 32% of businesses in the last quarter. Regionally, rising shortages of demand were reported not just in Europe and North America but also in the BRIC, South East Asian and Asia-Pacific economies.
Sherwin added: “Two years ago, the feeling was that the emerging markets would underpin the global recovery. Now they are suffering a crisis of confidence too. The problems in Europe, which provides a huge export market for emerging economies, together with the increase in their own domestic problem, particularly rising inflation, begs the question: who will be in a position to lead the global recovery this time?
“The European sovereign debt crisis is a major contributor to the lack of confidence felt in emerging economies. The ECB Governing Council meeting last week therefore assumes even greater importance than usual. Economies will not grow and regain confidence if businesses and consumers remain nervous about spending. Speculation is rife that the ECB will lower interest rates to try and boost spending, but although this will help, in isolation it will not be enough. Agreeing a package of measures to restore both stability and confidence is arguably the single biggest challenge policy makers face.”
Further enquiries, please contact:
Peter Sherwin
Partner, Grant Thornton New Zealand
T +64 (0)4 495 3777
M +64 (0)21 638 522
E peter.sherwin@nz.gt.com