There has been a marked and unexpected increase in business optimism for the next year despite high lending rates and a spate of job losses.
The latest Grant Thornton New Zealand survey, which included 200 business leaders and decision-makers, revealed there has been a significant uptick in positivity for the coming year.
The survey was released on Monday and showed despite tough economic conditions, businesses are feeling positive.
When asked about optimism for the next year, 2 percent of participants said they were very optimistic while 51 percent were slightly optimistic. This is compared with 4 percent and 32 percent respectively this time last year.
The cheer comes despite a tough year for businesses with those surveyed struggling to grow revenue.
In 2023, 50 percent of survey respondents had grown revenue by more than 5 percent during the previous 12 months, compared to 40 percent in 2024.
It also comes as interest rates continue to cause pain and domestic inflation remains stubbornly high.
Grant Thornton New Zealand business advisory partner, Greg Thompson said the optimism is "really encouraging" especially given the "current doom and gloom out there".
"The survey results tell us while many businesses are struggling, they're confident about the future," Thompson said.
"A change in Government, some business-friendly policies, flatlining inflation and the Reserve Bank pushing pause on interest rate increases will have contributed to this increase in optimism.
"It also demonstrates the negative commentary isn't being felt in all areas of the market; for example, there have been large-scale redundancies, but only in certain sectors."
Price increases no longer an option for survival
Thompson said it's also remarkable to see such high optimism levels when the number of businesses expecting to increase prices for goods and services has dropped from 52 percent in 2023 to 34 percent in 2024.
Demand is also down with 16 percent of businesses experiencing a shortage of orders compared to 9 percent in 2023.
"Although affected businesses are currently feeling pain, they're being realistic about the current environment," he said.
"Last year's inflation levels presented a one-off chance to increase prices to maintain margins, more price hikes are unlikely in the current market given consumers are becoming increasingly conservative about their spending.
"Instead, business owners will be exercising good business practices to maintain profitability such as letting go of underperforming products and services, cutting D clients, creating efficiency and productivity gains, and upgrading legacy technology".
Cashflow forecasting is key
Thompson added businesses are likely keeping a closer eye on cash flow as accessing credit is becoming more difficult.
The survey showed there has been a six percent jump from 10 percent in 2023 to 16 percent in 2024 in the number of businesses who said accessing capital is a major barrier to growing their businesses. This reflects banks' risk appetite decreasing meaning they're requiring more in-depth detail and certainty in borrowers' forecasts".
A pragmatic approach to retaining skilled staff
Despite an increase in immigration, workforce woes are also inhibiting business growth, according to the research.
The survey found 49 percent of respondents cited the availability of skilled staff as a significant constraint to growing their businesses.
But this is unlikely to have a negative impact on salary and wages over the next 12 months, Thompson said.
Roughly the same percentage of businesses are planning to increase salaries by more than inflation this year compared with last year. While 11 percent of businesses were planning increases above inflation in 2023, 10 percent are still planning to in 2024 and even more, 39 percent, are planning to raise wages in line with inflation - compared to 33 percent in 2023.
"Owners are responding with pragmatism by investing to retain the skilled talent they currently have in such a competitive labour market - another key indicator of the optimism out there at the moment. Long term, they want to maintain their workforce so they're ready when the economy picks up again," Thompson said.
