• 2015

Paul Kane, partner Privately Held Business, Grant Thornton New Zealand Ltd, looks at the state of the New Zealand economy through the eyes of his firm’s clients and the macro economic factors presently in play.

If you listen to various political parties and economic commentators, you can be forgiven for thinking that the New Zealand economy is getting worse.

It’s important to work out what’s factual and what’s hearsay. We know from our work with clients that most are still turning a profit.

So why all the gloom and doom? If you start with a full glass (NZ economy in recent times) and feel that it is now approaching half empty, then of course the picture is not so rosy; but if you start with a glass almost empty (NZ economy 2010-11) then that half full glass is very promising.

If the same optimism questions being asked today were asked in 2010-11, then New Zealand business confidence would appear to be soaring.

Which brings us to today. We’re actually doing quite nicely, as evidenced by the performance of a wide cross section of our clients covering diverse sectors of the economy.

New Zealand is tracking at just under 3% growth, which, historically, is very solid. There’s no denying that dairying is weighing us down, but when you look at the other end of the see-saw, it’s not stuck way up in the air.

The macro conditions are strong. Finally, we have a falling dollar, which will help improve the dairy situation and provide a substantial boost to our export market, including tourism. Then there’s falling interest rates, low inflation, a Government set of accounts on the verge of being in surplus, falling unemployment levels and strong  migration.

If you took away the dairy industry and a short-term blip in China’s growth path, then New Zealand has a good set of growing conditions.

Kiwifruit, wine and meat are all blossoming, and in the much maligned manufacturing sector, we are starting to see niche players get market traction. As rising wages and conditions in China are putting more pressure on their margins thus requiring plants to seek larger minimum runs, smaller manufacturers in New Zealand are starting to win market share.

Dairying has annual exports in excess of $13.7 billion and employs 37,000 people according to Dairy Companies Association of New Zealand.

Statistics New Zealand says that international tourist expenditure to the year ending March 2014 accounted for $10.3 billion or 15.3% of New Zealand’s total exports. Tourism also directly supports 94,100 full-time equivalent jobs.

In the year ending May 2015, 2.977million international visitors arrived in this country, an increase of 7% on the previous year with forecasts for this number to grow to 3.8 million by 2021.

China and India will be the two drivers of this international growth. According to Tourism New Zealand, 309,792 visitors arrived from China in the year to May 2015, an increase of 29.3% on the year previous, while India’s figures grew 28.9% to 42,880.

The future looks bright with two extra airlines (Air China and China Eastern) establishing year-round services, and while India does not have a direct service at present, it is only a matter of time. The World Tourism Organisation predicts that India will account for 50 million outbound tourists by 2020. There are currently only 28 million passport holders in India.

Tourism is supported by its geographical spread. There are well founded concerns that New Zealand’s economy is being driven by Auckland and Christchurch, so the fact that the tourist dollar is spent throughout the country underpins its importance. Recently Queenstown had 22 trans-Tasman international flights in a  day.

So instead of lamenting dairy’s cyclical low, why not celebrate and make headlines out of tourism’s growth and opportunities?

So back to that half full – half empty glass. If New Zealand businesses look at it as half empty, it won’t be long before it is totally dry as financial paralysis will choke cash flow and confidence. 

Viewed as half full, then owners and managers will have the confidence to continue to invest in their businesses and staff.

It comes down to how you view the glass.

Further enquiries, please contact:

Paul  Kane            
Partner, Privately Held Business            
Grant Thornton New Zealand
T +64 (0)9 308 2576
E paul.kane@nz.gt.com