Senior business leaders’ optimism in the outlook for the New Zealand economy has waned.
But they remain relatively sanguine about the outlook for the global economy and within their own industries.
Respondents to the Herald’s Mood of the Boardroom survey rated their optimism in the New Zealand economy at 1.82/5 on a scale of 1-5, where 1 signifies “much less optimistic” and 5 equals “much more optimistic”.
This year’s score compares to 1.86/5 in 2022 and a far greater level of optimism in 2021 at 2.70/5.
Despite the lower level of confidence, it still stands above the record low experienced during the Covid-19 pandemic in 2020, where the score plummeted to 1.36/5.
A prevailing sentiment is that we are at the nadir of the economic cycle.
Simplicity founder and CEO Sam Stubbs says that while New Zealand’s economy is in a relatively poor position right now, the long-term outlook is more positive.
“We are where Australia was in the early 1980s — about to get slowly more capital rich via KiwiSaver.”
A professional director agrees.
“We will likely stay here for a while and then things will improve”.
Chair and co-founder of The New Zealand Initiative, Roger Partridge, says the score is reflective of a combination of excessive public spending, inflationary monetary policy and anti-growth regulatory settings including immigration, foreign investment, the labour market and Covid.
“This has battered the New Zealand economy, and left it cruelly exposed to global forces,” he says. “The next government will inherit a perfect storm of economic challenges.”
More encouraging is CEO optimism in the global economy, at 2.23/5. This is a notable increase from last year’s rating of 1.83/5, underscoring a modest upswing in confidence in the global economic landscape.
As is typical in this survey, chief executives rated optimism in their own industry higher than that for the New Zealand economy or the global economy, with a weighted average of 2.47/5. This is slightly down from last year’s score of 2.70/5.
As expected, optimism varies across different industries.
The highest confidence was exhibited in the entertainment and leisure sector — an average score of 3.7/5.
The utilities, energy and extraction industry also reflected notable optimism — 3.1/5.
Cordis managing director Franz Mascarenhas is upbeat about the hotel industry’s improving circumstances in the coming year. “With all international markets — including China — opening up, and with some rationalising of airline fares overall travel should improve,” he says.
At the other end of the scale, transportation and delivery was among the lowest scoring — 2.1/5.
Both the construction sector and the education sector received a score of 2.3/5.
Real estate scored 2.6/5, reflecting the cyclical nature of the industry.
Cooper and Company CEO Matthew Cockram, notes “a downward cycle combined with the acceleration of trends such as flexible working — and high interest rates and inflation are an unwelcome confluence of negativity”.
Domestic concerns
Executives were asked to gauge their concern on various domestic issues.
Unusually for the Herald’s CEOs survey, the top five concerns all stemmed from matters related to government and its policies.
Of most concern was the level and quality of government spending, at 8.17/10 (on a scale where 1 reflects “no concern” and 10 “extremely concerned”).
While the Treasury’s pre-election economic and fiscal update (Prefu) showed economic growth forecasts to be more upbeat than the May Budget, it also noted that Crown expenses remained elevated this fiscal year, due to “decisions at Budget 2023, the rephasing of unused spending from the 2022/23 fiscal year, the response to the North Island weather events, and the increasing costs of debt servicing”.
Craigs Investment Partners chair Sir Ralph Norris, a former leading Australasian banker, predicts “government borrowing, coupled with falling terms of trade, will see New Zealand underperform the global economy”.
Inflation was the second highest domestic concern — CEOs rating it at 7.82/10.
This worry is closely linked to interest rates, which emerged as the fifth-ranked concern at 7.26/10.
Treasury’s short-term forecasts, as outlined in Prefu, forecast inflation was proving to be more stubborn than originally expected, with the prospect of interest rates remaining higher for longer until the end of 2024 — including the possibility of further hikes to get inflation under control.
“The resulting impact on economies as governments rightly seek to bring down inflation is uncertain,” says Beca executive chair David Carter.
“This uncertainty, combined with inflation pressures and increases in cost of capital, is understandably causing clients to review their capital commitments”.
A leading real estate boss adds: “Until inflation rates come under control and reduce around the world, we are going to see hardship in many businesses as they have had extra costs added to them over the past year and with sale numbers slow, so are profits”.
Rounding out the top five domestic concerns are infrastructure constraints (7.72/10) and crime (7.34/10).
A potential shift in government, as noted by some, raises expectations among business for an improved outlook in the New Zealand economy.
“The economy is not in a good place right now and the Government has hindered, not helped it,” says an advertising executive.
Sharing this perspective is a professional director, who expresses hope that there is “light at the end of the tunnel from the likelihood of a more business-aware government that understands the importance of wealth creation on our medium-term prospects”.
Echoing this sentiment, the CEO of an energy exploration firm reckons “a change in government to National/Act will improve my optimism around NZ economy but I believe we are in for a difficult global environment.”
Such concerns relating to government and the looming election have notably shifted downwards the traditional business concerns typically seen headlining this survey.
Last year, the most pressing domestic concern was skills and labour shortages, receiving a score of 9.0/10. This year, however, it has fallen to tenth position, at a lower score of 6.81/10. Similarly, immigration restrictions were a significant worry last year. They have now declined to 6.13/10 from 8.52/10.
Survey respondents were encouraged to put forward any other pressing concerns they have regarding domestic issues beyond those specifically polled.
Education emerged as an area several executives are deeply concerned about.
“Education, more broadly than just skills, is a key concern of mine,” says the CEO of a professional services firm.
“The state of our education — both in syllabus and attendance,” says social entrepreneur Anne Gaze.
“An entire cohort, a generation of children need engagement and relevant curriculum.”
Chris Quin - CEO, Foodstuffs
“Optimism comes from strategy, certainty and trust.
“Our industry has been facing the three R’s — recession, regulation and retail crime.
“These are still major unknowns for our industry and their true impact is yet to be felt.
“I am more optimistic than I was a year ago about the outlook for reduced food price inflation in the global economy with commodity prices coming off record highs and the global supply chain settling. However, volatility in oil prices still pose a risk.
“Domestically, Stats NZ’s Food Price Index appears to have peaked in June, and since then fallen back into single digits.
“But it remains stubborn.
“This downward trend is reflected in our own data. The cost increases on the goods we buy from suppliers to put on shelf are also easing back from record highs, but the inflation battle will be hard won.
“As we saw this year, weather is the wild card for everyone growing, manufacturing and retailing food. In the absence of a clear strategy to tackle domestic inflation, the uncertainty and costs imposed by Government on business has put our domestic economy on the back foot.
“I am much less optimistic than I was a year ago about New Zealand being able to address the rise of crime affecting the retail industry in New Zealand and overseas.
“It is becoming more brazen and it is getting more aggressive.
“We are facing a serious issue with career criminals who are repeat offenders and all too willing to get ugly and even assault staff when confronted.
“Everyone has the right to feel safe when they work and shop.
“Retailers need public and political support to use modern technology tools to keep our stores safe.”
Many business leaders rate the Opposition Finance Spokesperson highly.