Business confidence on the rebound
Business confidence on the rebound
Confidence has rebounded in the 2021 Mood of the Boardroom after record low levels in last year’s election survey.
Cumulatively, respondents to the Herald survey rated their optimism in the New Zealand economy at 2.70/5 — up significantly from last year’s score of 1.36/5.
A professional director notes that 12 months ago, the forecasts of unemployment, debt and GDP were completely at odds with what has since unfolded: “The outlook is substantially more positive, and this will continue, assuming we complete our vaccine rollout by year end and start relaxing border restrictions in the first quarter of next year.”
But Cathy Quinn, a director of Fletcher Building and Fonterra, says she is less optimistic about the New Zealand economy, as she cannot yet see the game plan for New Zealand to open up to the world again.
“The rest of the world is already opening up borders again — albeit with conditions as to which countries. Evidence of Covid-19 vaccination, pre-departure and arrival tests etc.,” she says. “I fear if New Zealand does not do so similarly in 2022, our economy will suffer as well as the wellbeing of Kiwis.”
Auckland Business Chamber CEO Michael Barnett says prior to Covid-19 there were some sectors that were driving the New Zealand economy. “If we are smart, we will relaunch our economy on those sectors that were doing well and be creative about reinventing those sectors that were not.
“Internationally, we need to be wary of small economies protecting themselves and introducing non-tariff barriers to do so.”
Says New Zealand Initiative chair Roger Partridge, “For the New Zealand economy there are risks in both directions — of business confidence being harmed by a Covid strategy that raises the prospect of never-ending lockdowns.
“If this risk does not eventuate, then we will see a continuation of asset, wage and consumer price inflation, which also presents a long-term threat to business confidence, growth and jobs.”
Global economy optimism has rebounded even further. Last year’s survey respondents scored it at 1.16/5, at a time when many of our major trading partners were being ravaged by the pandemic. This year it scored 3.15/5, showing that despite the Covid-19 numbers remaining significantly high around the world, the international vaccine rollout has clearly helped buoy confidence.
A banker says: “It is easy to be more optimistic than this time last year with vaccines in sight, but that doesn’t mean there are some massive structural concerns around how we make the most of the more buoyant economy we find ourselves in.”
Beca’s CEO Greg Lowe says: “Locally and globally, the pandemic economic impacts are more manageable than we feared, but ongoing disruptions (supply chains, recruitment, lockdowns) mean uncertainty around investment and potential delays to projects and plans.”
As is typical for this survey, executives rated optimism in their own industry the highest of the three optimism scores — 3.20/5, compared to 1.90/5 in last year’s survey.
But delving a little deeper into industry optimism scores shows that these vary considerably.
Industries that scored particularly high include insurance, airlines and aerospace, technology, finance, and entertainment.
“The 2021 financial year was a huge year in markets, reflected in a record return for the NZ Super Fund,” says NZ Super Fund CEO Matt Whineray. “Driven by strong fiscal stimulus, aggressive monetary policy and the pandemic response, markets have rallied strongly since late March 2020. Markets are pricing in continued earnings growth and low interest rates, so it’s hard to see these moves being repeated this year, with continued uncertainty around the course of the pandemic and the spectre of inflation”.
At the other end of the scale, executives that gave the lowest scores are working in education, manufacturing, utilities, and construction.
“The pandemic has gone on much longer than I anticipated, and it still isn’t clear as to how it ends (if it ever does),” says a utilities executive, an industry that scored an average of 2.5/5 for optimism.
“We are in this quagmire in New Zealand of not being able to solve for a protracted and slow vaccination rollout compounded by inadequate tracing and testing speed and capability and the need to open the borders to enable tourism to restart — I am particularly depressed at the moment,” says a director in retail, a sector which scored an average of 3.38/5 for optimism.
The construction sector scored optimism for its industry 2.67/5. Says Fulton Hogan managing director Cos Bruyn: “The latest Covid lockdown in New Zealand and ongoing issues in Australia may constrain capital spend, dependant on ongoing duration of business disruptions. There is also the issue of international supply chain and shipping disruptions that will impact on our ability to spend to consider.”
Sanford CEO Peter Reidie says Covid has made a significant impact on Sanford’s revenue lines: “As a heavily export focused business, we were hit early by the impact of Covid-19 globally on food service and supply chains. We are now seeing different parts of our business begin to recover from that at different speeds.
“We need and expect to see further global recovery from Covid.”
The food and beverage sector scored optimism for its industry at 2.8/5.
The Warehouse Group chairman Joan Withers was less optimistic. “Probably because we are in this quagmire in NZ of not being able to solve for a protracted and slow vaccination rollout compounded by inadequate tracing and testing speed and capability and the need to open the borders to enable tourism to restart I am particularly depressed at the moment.”
Domestic concerns
The top five domestic issues of concern for executives are unsurprisingly Covid-related.
They are particularly concerned about skills and labour shortages, which they rated at 9.18/10 on a scale where 1 = no concern and 10 = extremely concerned.
Throughout the survey chief executives have raised many contributing reasons for the skills and labour shortage, including a huge increase in infrastructure and technology projects requiring significantly more staff than in the past, border restrictions preventing skilled immigrants entering the country, poaching of talent from international firms and recruiters, and salary costs being driven up by employees that are role-hopping between companies.
Susan Peterson, a director in the technology and digital sectors, says the New Zealand economy performed very well through Covid, largely due to the success of the Government’s elimination strategy and support provided, but is concerned that the rest of the world is now “kicking back into life” and New Zealand is being left behind:
“The border restrictions are having a real impact on NZ’s tech sector,” she says. “The jobs we are creating, and could locate here in NZ, are now being recruited in overseas hubs as we don’t have sufficient locally trained New Zealand talent and are not permitted to bring it in through the border. It is concerning to see the potential long term damage being done to New Zealand.”
Says Fulton Hogan managing director Cos Bruyn: “It is becoming an increasing challenge to hold staff, let alone grow staff numbers. Labour costs are rapidly escalating, the costs of which will need to be passed on.”
The next highest scoring domestic concerns are: the potential for community transmission of the Covid-19 delta variant (8.69/10), immigration restrictions (8.53/10), quality border protection against Covid (8.22/10) and transport and logistics costs (8.09/10).
“Supply chain issues and rising building costs is putting pressure on our costs which we are working hard to manage while also offering competitive pricing,” say Tower Insurance chief executive Blair Turnbull.
“If these inflationary trends continue the costs unfortunately will ultimately also flow through to higher premiums for customers.”
Local Government Funding Agency chair Craig Stobo says we are in the midst of a wartime economy: “Wage controls are in place, we cannot travel overseas and return easily, families are divided by cumbersome border restrictions.
“Migrant labour is not allowed to assist our food producers, businesses cannot find labour. Small businesses are closing, supply chains are disrupted, and materials are in short supply.
“Meanwhile, long-term structural issues of poverty, inequality and housing affordability have deteriorated significantly.”
Other more traditional issues that have a heightened level of concern among executives include the level and quality of government spending (7.95/10), the increase of cyber attacks (7.92/10), general uncertainty around direction of government policies (7.61/10) and infrastructure constraints (7.55/10).
