New Zealand chief executives are becoming gradually more optimistic, with a clear majority expecting higher revenue and profit from their businesses over the next 12 months – an improvement on last year’s sentiment.
But the broader economic environment remains challenging, and business leaders are still hesitant to invest or hire staff.
According to the Herald’s Mood of the Boardroom survey, 73% of CEOs expect revenue growth in the coming year, up from 62% last year and 55% in 2023.
Profit expectations have also lifted, with 61% forecasting increased profits, compared to 57% last year and 44% in 2023.
However, hiring intentions remain subdued. Just 31% of respondents plan to increase staff numbers, while 34% expect a decrease over the next 12 months and 34% expect to keep the status quo.
The survey asked how significant the challenge of attracting and retaining skilled talent in their industry is, considering recent worker migration trends and changing immigration policies.
The majority (37.8%) rated that challenge 3 out of 5, with 1 being very difficult and 5 being very easy. Those at each end of the spectrum were fairly similar, with 6.6% rating it 1 and 7.3% rating it 5.
When it comes to capital expenditure, 43% of respondents said they were planning to invest more, with 21% expecting to cut back. One third (34%) said they expected to spend the same.
IT spending is slightly more buoyant, with 59% expecting to increase investment and 15% expecting cutbacks.
While Kiwi executives are more optimistic about the year ahead than they were this time last year, economic activity remains weak, and the jury is still out on the recovery track.
Stats NZ’s gross domestic product (GDP) data showed New Zealand’s economic growth stalled over the June quarter, with a 0.9% decline – against market expectations of a 0.4% fall and the Reserve Bank’s forecast of minus 0.3%.
“[The GDP] data will be very unhelpful for those selling the message of a recovering economy,” BNZ head of research Stephen Toplis said last week.
The contraction was broad-based with falls in 10 out of 16 industries.
Agriculture, forestry, and fishing were down 0.3% and exports fell 1.2%, driven mainly by dairy and meat products. Construction dropped 1.8%, with falling residential construction highlighted. Mining plunged 4.1%.
Manufacturing fell 3.5% for the quarter, led by declines in the production of food and beverages, transport equipment and other machinery, and metal products. Also down materially were transport, couriering and warehousing; financial and insurance services; healthcare and social assistance; and art and recreation. Retail fell 0.2%.
The poor GDP numbers are expected to see further and possibly deeper cuts to the official cash rate, with some banks now calling for a cut of 50bps at the Reserve Bank’s next opportunity less than a month away.
“After disentangling the data, we have adjudged the amount of spare capacity in the economy to be significantly larger than the Reserve Bank assumed during the August monetary policy statement,” ASB economists said.
“With New Zealand lacking economic tailwinds, the onus falls on the OCR to support the economy.
“We are now calling a 50bps cut in October, with a 25bps cut in November to bring a 2.25% year-end OCR,” ASB said.
There is also a positive event on the horizon for the rural economy with Fonterra’s looming capital return following the sale of its consumer business.
The dairy giant has signalled that $3.2b of the sale proceeds would be returned to shareholders, with it targeting a tax-free capital return of $2 per share. A vote on the deal will take place in late October with settlement in the first half of 2026.
Just how much of that windfall will be deployed on capital investment or off-farm investment, compared to debt repayment, remains to be seen. But it is likely there will be some boost to the rural economy.
Meanwhile, the latest listed company reporting season painted a mixed picture, with twice the number of listed firms reporting results that were below analyst expectations than above.
According to a Forsyth Barr analysis, only eight firms out of 31 reported results ahead of earnings-per-share expectations, with five in line and 18 below expectations. The number of downgrades to forecast earnings also dwarfed upgrades by a near-record six times, the investment firm said.
“On the face of it, the latest reporting season appears dire, with a large number of misses at the EPS [earnings per share] line and downgrades to estimates across the board,” Forsyth Barr analysts Aaron Ibbotson and Matthew Leach said in a research report.
“However, the market, via share price reactions, appears to have taken the results and resultant earnings revisions in its stride, and looks to be moving forward with a more optimistic view.”
“Positive share price reactions to broadly negative news are as good a signal as we will get for the start of a reversal in what has been an abysmal four years for the New Zealand market.
“Add to that the RBNZ’s ‘better late than never’ shift to a more dovish stance, and the anatomy of a recovery is taking shape. Now we just need those downgrades to slow. For that, the economy needs to recover.”
Forsyth Barr also scanned the latest result announcements for a selection of key words and phrases,
“In general, we find that ‘headwinds’ and ‘challenges’ remain.”
Duncan Bridgeman is the managing editor of NZME Business, overseeing the Business Herald and BusinessDesk.