Marked Increase In Business Optimism Over Next 12 Months Despite Current Conditions

Grant Thornton New Zealand’s latest survey of over 200 business leaders and decision makers has revealed a significant uptick in optimism for the coming year despite many toughing it out in current economic conditions.

Asked about optimism around economic conditions over the next 12 months, survey participants cited being very optimistic (2%), and slightly optimistic (51%) compared to 4% and 32% respectively this time last year. This is despite a tough year where many businesses surveyed have struggled to grow revenue. In 2023, 50% of survey respondents had grown revenue by more than 5% during the previous 12 months, compared to 40% in 2024.

Grant Thornton New Zealand business advisory partner, Greg Thompson says, “It’s really encouraging to see such high levels of optimism in a large number of businesses despite the current doom and gloom out there. The survey results tell us while many businesses are struggling, they’re confident about the future. A change in Government, some business-friendly policies, flatlining inflation and the Reserve Bank pushing pause on interest rate increases will have contributed to this increase in optimism.

“It also demonstrates the negative commentary isn’t being felt in all areas of the market; for example, there have been large scale redundancies, but only in certain sectors”.

Price increases no longer an option for survival

Thompson says it’s also remarkable to see such high optimism levels when the number of businesses expecting to increase prices for goods and services has dropped from 52% in 2023 to 34% in 2024. Demand has also reduced with 16% of businesses experiencing a shortage of orders compared to 9% in 2023.

“Although affected businesses are currently feeling pain, they’re being realistic about the current environment. Last year’s inflation levels presented a one-off chance to increase prices to maintain margins, more price hikes are unlikely in the current market given consumers are becoming increasingly conservative about their spending.

“Instead, business owners will be exercising good business practices to maintain profitability such as letting go of underperforming products and services, cutting D clients, creating efficiency and productivity gains, and upgrading legacy technology”.

Cashflow forecasting is key

Thompson says, “They should also be keeping a closer eye on cashflow and forecasting. There has been a six percent jump [10% in 2023 to 16% in 2024] in the number of survey respondents who say accessing capital is a major barrier to growing their businesses - a reflection of banks’ risk appetite decreasing, which means they will require more in-depth detail and certainty in borrowers’ forecasts”.

A pragmatic approach to retaining skilled staff

Despite an increase in immigration numbers, workforce woes are also inhibiting business growth according to the research; 49% of survey respondents cited availability of skilled staff as a significant constraint to growing their businesses. However, this is unlikely to have a negative impact on salary and wages over the next 12 months with roughly the same percentage of businesses planning to increase salaries by more than inflation this year compared with last year (11% in 2023; 10% in 2024), and even more planning to provide increases in line with inflation (39% in 2024; 33% in 2023).

“Owners are responding with pragmatism by investing to retain the skilled talent they currently have in such a competitive labour market – another key indicator of the optimism out there at the moment. Long term, they want to maintain their workforce so they’re ready when the economy picks up again,” says Thompson.

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