Chief executives optimistic despite NZ’s tough economic backdrop - Mood of the Boardroom

Notwithstanding the Reserve Bank’s recent move to ease monetary policy, economic growth remains tepid. Photo / Mark Mitchell

Optimism is creeping into the minds of New Zealand’s chief executives with more expecting higher revenue and profit over the next 12 months, compared to their expectations a year ago.

But businesses are still under pressure and bosses are expecting to hire less staff while cutting back forecasts on IT expenditure, according to NZ Herald’s 2024 Mood of the Boardroom survey.

The country’s top company executives are most worried about managing profit expectations and achieving revenue growth, while also mindful of regulation, something David Seymour has promised to address with the new Ministry for Regulation.

Notwithstanding the Reserve Bank’s recent move to ease monetary policy and reduce finance costs, economic growth remains tepid.

“It’s effectively a recession that’s lasted two years,” Kiwibank chief economist Jarrod Kerr said in reaction to GDP falling 0.2% in the June quarter and a 2.7% annual decline on a per capita basis.

However, while the economy is weak, further OCR cuts should help spur some economic growth, ASB senior economist Kim Mundy said.

This environment shone through in the Herald’s survey of chief executives.

On the positive side, 61% of those surveyed said they expected to report more revenue over the next 12 months and 18% said less. That’s better than this time last year when 55% said more and 23% said less. The same can be said for profit expectations: 56% forecasting more, compared to 44% last year, and 20% saying less (28% last year).

There’s still a reluctance to commit to capital and IT expenditure, 33% expecting more capex and 40% saying they would invest more in technology. Hiring intentions are less rosy, just 16% of CEOs expecting to hire more staff and 46% less. Last year the numbers were 25% more and 30% less.

Asked which issues are most likely to keep them awake at night, 31% said achieving top-line revenue growth and 31% said managing profit expectations. Those are similar figures to last year. Managing regulatory challenges was ranked the third-biggest concern, 30% highlighting that issue.

Another interesting feature of this year’s survey is that sourcing and retaining skilled staff has dropped out of the main worry basket, just 14% of CEOs saying it keeps them awake at night, compared to 37% last year. This may reflect the softening jobs market following the prolonged slowdown in the economy over the past two years.

The recent listed company reporting season highlighted the difficult challenges many firms are dealing with, although the shift lower in interest rates is giving cause for optimism. According to a Forsyth Barr analysis, only five firms out of 31 reported results ahead of earnings-per-share expectations, with six in line and 18 below expectations.

“Unsurprisingly, growth for the period concerned was poor. It was the actual level of growth which disappointed, coming in below our expectations with a record number of misses versus beats.

“Downgrades have again been made across the board from revenue through to the bottom line. Once again, the main theme of the season is the continuation of the downgrade cycle.”

The results covered the 12 months to June 30, and some interim six-month periods, so there was an element of “old news” to them, Craigs Investment Partners portfolio manager Mohandeep Singh told the Herald’s Jamie Gray. “Once we get through the next couple of months — through the hard stuff for the economy — it does turn quite aggressively the other way,” he said.

“Interest rates coming down makes a big difference for people, but it just takes time for that to fall into our pockets.

Once that happens, and every other central bank around the world does the same thing, it will be a matter of “a rising tide lifts all boats, and we will see some of our more beaten-up sectors start to come to life”, he said.

Duncan Bridgeman is the managing editor of NZME Business, responsible for the Business Herald and BusinessDesk.