Despite some positive signs, New Zealand’s small and medium-sized enterprises are likely to continue to weather tough economic times in the near term.
According to a report from Business NZ, the Reserve Bank of New Zealand (RBNZ) is finding it harder than expected to rein in inflation in the face of rising housing costs, interest rates and insurance.
Kiwis are also facing a cost-of-living crisis and consumer confidence remains downbeat. Combined with rising unemployment, Business NZ says households are avoiding big-ticket expenditures and are instead spending on essential items such as food.
Businesses doing it tough
ASB Bank reports that retail volumes fell 1.2% in the second quarter of 2024 and expects retail activity to remain soft heading into 2025, as population growth cools, inbound tourist numbers plateau and households save a decent chunk of their income tax cuts.
Worryingly, Stats NZ’s building activity data for the June quarter showed the lowest volume of building activity since the COVID-impacted June 2020 quarter.
Meanwhile, businesses are being hampered by regulatory barriers which have grown unabated over recent years. In addition to continued international supply disruptions, businesses also face the uncertainties of major conflicts in areas such as in Ukraine and Gaza and moves by some major countries to reintroduce trade-protectionist policies.
Also of concern is the possibility that China, New Zealand’s largest trading partner, could experience a slow-down if it doesn’t respond effectively to its troubled property sector.
Indeed, when converted into growth on a per capita basis, New Zealand is facing negative growth.
The good news is that, despite international tensions, commodity prices – dairy in particular – have generally improved while oil prices have fallen.
But Business NZ notes that even though business lending is rising, insolvencies hit 255 in the month to May 30, up 63% from May 2023.
Some regions are doing better than others. According to Thrive HQ, Southland is the country’s top performing region, with activity boosted by a building boom. Otago is a strong performer, but activity in Auckland is still weak and Wellington’s economy remains stagnant.
The $64 million question
Business NZ says it is almost universally accepted that the next move on interest rates will be lower. However, the $64 million question is, when?
Some experts suggest there will be several cuts later this year while others predict that these will come well into next year.
Kiwi Bank, for example, foresees the RBNZ delivering its first rate cut in November if the economy and inflation evolve as it expects.
“We are cognisant that the risks are tilted toward a delayed kick-off. Regardless, we are confident that the next move in rates is down,” it states in a recent report.
However, Business New Zealand says: “Unless the Reserve Bank is playing mind games with markets, their general view as expressed in the Monetary Policy Statement is that there will be no cuts likely until mid-next year.
“Given both international uncertainty and domestic pressures, it is likely that the Reserve Bank will take a very cautious approach to lowering the official cash rate until [it is] well and truly certain that the inflation genie is back in the bottle.
“[It has] been burnt before, so will not want to fuel expectations of any easing which could exacerbate moves by banks to cut rates prematurely.”
Basic steps to take
With the short-term business outlook looking so uncertain, business owners are advised to carefully scrutinise their cash flow and keep it in check.
They can do this by cash flow forecasting, reining in costs, getting rid of excess inventory and ensuring customers pay on time. They could also focus on their best sources of revenue and on providing a great customer experience.
Using the latest technology tools and apps may also help cut costs and save time. Interestingly, Xero’s research indicates that digital adoption improves the resilience of small businesses in times of economic uncertainty.
Businesses could also turn to their accountants, industry bodies, local chambers of business, banks and non-bank lenders for advice. And they could research whether they are able to benefit from the support and resources offered by government.
Finding a cash flow finance solution
New Zealand is not out of the woods yet. Despite some positive signs, New Zealand’s business owners should be prepared to weather a tough economy for some time to come. One method that can help to insulate businesses from economic challenges is cash flow finance – a financial strategy that focuses on optimising your balance sheet, ensuring funds are always on hand. There are also several facilities that can help maintain your business’s financial health.
Cash flow finance with ScotPac
ScotPac has been helping New Zealand businesses grow and thrive with fast, flexible funding solutions for three decades. Our unique market knowledge and industry-leading financial products and services are designed to help businesses bridge cash flow gaps, minimise late payments and capitalise on assets.
To find out more about our Invoice Finance, Trade Finance, or Business Loan solutions or to discuss your goals for your business, get in touch with ScotPac’s lending specialists today.
