NZ a mix of highs and lows as SMEs downgrade expectations

The country’s economic engine room, Auckland, may be sparking to life, but the rest of New Zealand is struggling to fire according to the latest MYOB Business Monitor survey. Lacklustre results from around the country are seeing business owners downgrade their revenue expectations for the year ahead, as three quarters of regional New Zealand businesses put the recovery more than a year away.

The regular survey of over 1000 SME business owners nationwide has highlighted a two speed economy where businesses in the main centres expect to earn significantly more in the next 12 months, while regional New Zealand – which makes up 46% of the business population – struggles. 

According to the Monitor, a net 36% of Auckland businesses expect their earnings to increase in the next 12 months, 33% in Christchurch and 25% in Wellington. In contrast, a net 8% of regional businesses expect to earn more in the coming year – downgraded from a net 25% expecting annual revenue growth in the March MYOB Business Monitor.

MYOB general manager Julian Smith says the survey highlights the continued fragility of the economy and the struggle business owners – particularly those outside the main centres – are facing to maintain growth.

“We’ve been really encouraged to see Auckland trending steadily up in the last two quarters, and Wellington post some excellent results,” says Smith.

“However, we’ve seen a stark contrast in the earnings and expectations from the rest of the country – and the effects of a delayed rebuild in Canterbury – which have contributed to the largest downgrade of revenue expectations we have seen for some time.” 

Over the past 12 months, a net 11% of Auckland businesses have posted increased earnings, the first time two consecutive quarters of positive growth have been reported in the region since the MYOB Business Monitor survey was established in June 2009. Wellington businesses had the best quarter, with a net 16% reporting increased earnings. Around the rest of the country, however, a net -6% of regional businesses saw revenues fall, while in Christchurch, where growth has been hampered by the slower than expected pace of the rebuild, 40% of businesses saw revenues reduced for a net -12% result.

The regions facing the greatest struggle with a stalling recovery were Manawatu (net -18% revenue), Waikato (-16%), Hawkes Bay (-13%) and Bay of Plenty (-9%). 

Smith says the pace of the recovery in the regions is being affected by performance in the country’s two leading industries: primary production and tourism.

“What we are seeing in the earnings for the primary sector in particular, is an industry that remains under pressure from rising transport costs and sluggish export markets, while the key tourism sectors – retail and hospitality – are also struggling,” says Smith. 

Both the primary and the retail/hospitality sectors saw a net 7-% fall in earnings over the last 12 months.

 

While Wellington showed the strongest improvement over the year, with 40% of businesses reporting revenue growth, the pace in the region will slow as public sector cuts begin to bite. Only a net 25% of businesses in the capital expect improved earnings in the next year, as pipeline work booked for the next quarter slows to a net -1% fall.

Christchurch business owners, however, expect to see improvement in the year ahead as the pace of the rebuild increases, with 42% expecting revenue growth, just behind Auckland with 45%. This growth will come off the back of a positive quarter, as a net 17% of Christchurch businesses and net 13% of Auckland businesses report an improved sales pipeline for the next three months.

Businesses in the rest of New Zealand, however, expect more modest gains, with 28 percent of businesses forecasting growth in the year ahead, and 20 percent expecting revenue to fall. The regions are also reporting a more modest sales pipeline, improving by just 3%.

Among the sectors, the finance and insurance sector (44% net gain) and the manufacturing and wholesale sector (31% net gain) have the highest revenue expectations for the year ahead, while the primary industries expect revenue to decrease (-3% net fall in revenue). 

Businesses likely to do the best in the next quarter are those in construction and the trades, with 39 percent reporting an improved sales pipeline, and transport and warehousing (also 39%).

 

Julian Smith says businesses are facing an increasing range of costs and growing competition for customers, which they expect to place pressure on their business over the next 12 months.

“The spectre of rising fuel prices is haunting New Zealand business owners again – even though the price at the pump has fallen off previous highs in recent weeks,” says Smith.

“But the other pressures businesses face point to a highly competitive market, where businesses have to work hard for every consumer dollar.”

The top five pressures business owners identify for the next year are:

1. Fuel prices: 36%

2. Competitive activity: 27% (up from number 5 in the last MYOB Business Monitor)

3. Price margins and profitability: 26%

4. Attracting new customers: 25%

5. Cashflow: 25%

 

“With the regions really struggling to maintain growth, its important we focus on what we can do to support the local business community,” says Smith.

"Anything we can do to help businesses grow and remain competitive will be important. That’s the thinking behind MYOB and Westpac’s collaboration on the GetOnline initiative – providing free websites for businesses in order to help them market their business and take advantage of the global online economy. This is particularly important for the regions, where online trading can help businesses reach new markets.”

"With so much pressure on the world economy, the impetus to restart the recovery is going come from within – so it would be great to see more activity in support of our local economy: buying local, supporting local businesses and finding ways to enhance what local business people can do and making it easier for them to succeed.”