Business has brighter outlook for 2012

New Zealand businesses have renewed confidence heading in to 2012, according to the latest Grant Thornton International Business Report (IBR).

The quarterly survey noted a cautious increase in optimism; with many indicators pointing to growth plans among employers and most employees will get a pay rise this year. Expenditure on R&D, however, looks set to take a back seat.

After a bullish outlook early in 2011, business confidence dipped last quarter but has now taken an upturn with 36% of respondents more upbeat compared with 32% in the previous period.

This contrasts with New Zealand’s major trading partners who are viewing the New Year less favourably. Confidence among Australian businesses declined for the fourth consecutive quarter, now standing at 24%; the US at 1% and the UK at -35%.

Peter Sherwin, a partner with Grant Thornton New Zealand, said that in Australia the recession had been masked by the profitable extractive sector but the wider business sector was now beginning to experience a lack of demand coupled with signs that the property bubble is about to burst.

“In New Zealand our rural sector has a far more widespread effect because there is barely a city, town or province which does not have some farming component. The benefit is that when the rural sector is doing well it feeds right throughout New Zealand. There’s a far greater distribution of benefits than from the extractive industry in Australia, which is far more geographically defined.”

Mr Sherwin said while tourism was challenging, New Zealand had been able to swap the traditional visitor markets of Europe and the US for Australia and China.

Higher dairy prices have also had a flow on effect to trends predicted for 2012. More than half of respondents (56%) are expecting increased revenues and 47% are planning to invest in plant and machinery.

However, Mr Sherwin was concerned at the dip in businesses planning to invest in R&D, now at -4%.

“R&D traditionally takes a back seat when there is a constrained economic environment and profitability is hammered. But it’s a worry. You can’t reduce the investment in R&D for a sustained period without killing your business,” he said.

The survey also indicates that businesses are cautious about employment opportunities over the next year with 26% expecting to increase their workforce, a significant drop of 23% compared with the previous corresponding quarter. But, at the same time, they see a lack of skilled workforce as a major impediment to growth in 2012.

Mr Sherwin attributed the apparent discrepancy to an overall caution among employers after “a couple of false dawns” but they did signal concern about availability of skilled workers.

“We have unemployed people but do they have the skills for the jobs that are going to be available. This gets back to one of the real challenges for New Zealand, which is to get a better match between tertiary education and industry. I think there is a clear disconnect between what the education system is producing versus industry demands.”

Mr Sherwin called for a tripartite collaboration among industry, the education sector and government to improve the “connection.”

Good news for employees in the report was that 79% of employers were planning to provide workers with a pay rise over the year, a marked increase from last year. Of those, 62% said the salary increase would be in line with inflation and 17% said it would be by more than inflation.