Business risk dropping as economy picks up

An improvement in the New Zealand economy has seen more than 32,000 companies reduce their risk of distress over the next 12 months.

New research by credit reporting firm Dun & Bradstreet indicates that 7% of companies were re-rated a lower risk in the three months to February, an improvement on the same period last year when 5.7% of companies re-rated lower, up from only 1.4% back in 2010.

In a statement D&B says the data is in line with positive information from the Reserve Bank and Treasury and is also consistent with D&B’s recent Trade Payments Analysis, which indicates businesses were quicker to pay their bills during the December quarter.

The improvements in risk varied between sectors, with some enjoying re-rating levels much higher than average.

One in five communications firms lowered their risk rating over the three months to February, compared to 17% of those in the electric, gas and sanitary services sector and 13% of construction firms.

Also, 10% of firms in the retail industry were also re-rated as having a lower risk of experiencing financial distress in the coming year.

This comes as Statistics New Zealand data reveals consumers spent more on their debit and credit cards in February, the fifth consecutive monthly increase and the largest since August 2012.

The fishing and forestry sectors experienced the smallest proportion of improved risk ratings, at 5% and 8%, respectively.

According to Lance Crooks, D&B New Zealand’s general manager, the company risk changes are consistent with recent improving economic conditions.

“We are seeing many companies improve their risk rating, following the domestic recovery from the global financial crisis. The tens of thousands of New Zealand businesses that now present a lower risk of experiencing financial stress is a significant turnaround from the period between 2008 and 2011," he says.

“In particular, the data from 2008 and 2009 reflects volatile global financial conditions during that period, which had a flow-on effect on New Zealand companies in terms of risk ratings.”

Stephen Koukoulas, economics adviser to D&B, says the outlook for the economy in New Zealand is increasingly favourable.

“Firms are clearly cashed up and are awaiting the right opportunity to increase their activity. 

“With the RBNZ leaving interest rates at historically low levels and New Zealand’s largest export market – Australia – in the early stages of a growth pick-up, New Zealand could be on the cusp of a sharp lift in activity.

“This would be welcome given the recent experience of the global financial crisis and earthquakes which were obviously extreme negative influences on economic activity.”

nkloeten@nbr.co.nz