Despite attempts to encourage investment, the majority of businesses say that they will maintain or increase their cash reserves – building on the $4trillion of cash already sitting on company balance sheets1. To get their economies moving, the majority of the 3,000 businesses interviewed want their governments to increase fiscal activity – something which might boost investment.
Peter Sherwin, Partner at Grant Thornton, said: “With the economic outlook so uncertain, businesses around the world continue to build cash rather than re-invest it back into their operations. New Zealand businesses are no different. There is a vicious cycle at work, in which low confidence leads to delayed decisions on investment, hiring staff and rewarding top performers. These delayed decisions means slower growth, which in turn undermines confidence.”
“Reason might tell business leaders to stuff their cash under their mattress and wait for a sustained recovery. But instinct might say that with interest rates low and a lack of skilled talent, this is the perfect time to invest in both their people and their operations, helping them to get ahead of the competition when the global economy is on a surer footing.”
The IBR reveals that businesses are looking for greater fiscal stimulus in the way of tax incentives and an increase in government spending and investment, as opposed to further monetary measures. Globally, 68% of businesses called for more tax cuts and breaks whilst 48% of businesses said they want to see an increase in government spending and investment.
This call comes as businesses say they intend to sit on increasing amounts of cash in the coming months. Globally and in New Zealand, 80% of businesses expect to either maintain or increase their cash reserves over the next 12 months according to the IBR. In New Zealand a further 18% of businesses currently hold cash reserves above 10% of revenues, and 10% hold more than 30%.
Peter Sherwin continued: “Many developed market governments are wrestling with huge debt burdens. There is a huge responsibility now on governments to provide leadership and to work together to overcome the debt problems and create the environment necessary for business leaders to invest for the future.”
New Zealand, business optimism has fallen from 42% to 34% in Q3 but we are faring far better than many others. Drops in confidence across the world’s three largest economies have been far more pronounced: In the US, the Presidential election and the looming ‘fiscal cliff’ are weighing on decision making, optimism for the next 12 months fell from 50% to 19%. In China confidence fell from 33% to 11% as the marked slowdown, particularly in exports, hits the economy. And with hopes receding that recent pronouncements by the ECB would put an end to the eurozone crisis, optimism across the EU fell from -2% to -13%.
This downturn in optimism may have dampened the investment outlook for businesses around the world, but not so in New Zealand. Expectations for boosting investment in plant and machinery over the next 12 months is up by 14 percentage points while globally (down 6), with some of the biggest falls in China (down 12), Germany and the US (both down 11). New Zealand also sees a much needed lift in R&D investment, up 16 percentage points to 38 percent.
Hogan Lovells research into total cash on the balance sheets of the world’s top 500 non-financial companies
Peter SherwinPartner, Privately Held Business
T +64 (0)4 495 3777
M+64 (0)21 638 522
E peter.sherwin@nz.gt.com