Mark Fowler: Why things aren't that bad for Kiwi businesses

The high-profile demise of Ebert Construction and low business confidence has certainly have struck a chord with economists - but is it really that dire out there? Photo / Jason Oxenham.

If you've picked up a paper or read any online business commentary recently, you could easily be excused for thinking we're running headlong into a recession.

The recent, high-profile demise of Ebert Construction, coupled with the lowest business confidence numbers since 2008, have certainly have struck a chord with economists - but is it really that dire out there?

If we cast our minds back to 2000, there was a significant period of uncertainty in the wake of the 1999 change of government, which caused businesses to delay hiring and investing in the immediate term. This was soon followed, however, by a substantial rebound in economic growth. Are there parallels in 2018?

Thinking about the current economic climate, there are four key things that stand out to me.

• As anyone who has recently fixed their mortgage will attest to, businesses and households are still enjoying a low cost of capital. This is set to continue, with the Reserve Bank having communicated their desire to keep this accommodative setting on interest rates for at least the next twelve months.

• A tight labour market – New Zealand's unemployment rate is low, at 4.5 per cent, with demand for labour continuing to support employment growth. Wage inflation has been modest but this is expected to increase - in some part due to a rise in the minimum wage, but also thanks to the growing desire to attract and retain skilled workers.

• A lower New Zealand dollar has also been welcome news for our local export market. This sector has needed to adjust during a long period of resilience, where the NZD has been stubbornly high against other currencies, despite interest rate differentials. At the time of writing the Kiwi dollar is trading at 0.6750 cents, after being as high as 0.8800 cents back in 2014. The lower currency acts as a tailwind for the export sector, with cheaper goods being more attractive for offshore buyers.

• Finally, an ever-increasing pool of private equity is a promising trend for New Zealand businesses. Our economy is dominated by private companies and SMEs which raise capital outside established stock markets. Small and medium-sized enterprises, in particular, are important players in many sectors of the economy; notably, light manufacturing, agribusiness, consumer retail, services, healthcare, and leisure. In 2016, over $700 million was raised via private equity and venture capital firms, and, thankfully, a growing optimism in the private equity market doesn't reflect the current negative sentiment around the broader outlook.

It would be naïve to assume that it's set to be all roses for business owners. However, with the low cost of capital, tight labour markets, a lower currency and a growing pool of private equity, the current climate appears more supportive than recent business confidence numbers would indicate. Especially so when considered alongside talk of fiscal stimulus designed to foster growth and employment.

So, whilst some market commentators are talking storm clouds on the horizon, I won't be getting my umbrella out just yet.

Mark Fowler is head of Investments at Hobson Wealth Partners