Kiwi SMEs expect economy to decline

New Zealand small and medium-sized businesses are seeing the first signs of the economy slowing according to new research from MYOB.

The MYOB Business Monitor survey, which covers more than 1000 businesses across the country, has revealed that more than half of Kiwi SME operators are expecting the economy to slow over the coming year, but their current performance and forecasts for the coming year suggest they'll avoid anything more serious.

According to the survey, over the next 12 months, 34% of SME operators expect their business revenue to increase – down from 40% in the February survey – while a further 41% are forecasting stable revenue.

The number of businesses expecting revenue to drop over the next 12 months has almost doubled, from 11% in February to 21%

MYOB New Zealand general manager James Scollay says while both global and local economic factors are weighing on local SME operators, they are not hitting the panic button.

"Our local SME operators are clearly seeing some downside risk for 2016," he says. "But the key point to make is their performance expectations are not falling off the cliff.

"We are seeing a considerable rise in the number of businesses who expect their own growth to come off current levels, but more than a third of SMEs still expect to grow in 2016.

The survey shows growth levels for SMEs have remained consistent over the last six months, with 31% reporting improved revenue in the year to August, compared to 32% in February, while 41% have maintained stable revenue (down from 44% in February).

According to survey, pipeline work booked for the next three months has shown a similar pattern, with 31% saying they have more work currently on the books, down from 37% in February. Almost a quarter (22%) have less work on, a jump from 13% in the earlier Business Monitor survey.

Decline expected in overall economy

The survey reveals over half (51%) of all SME operators expect the economy to decline in the next year -12% of them significantly, while just 21% expect to see it improve.

Fewer business operators in the major centres expect the economy to decline, including 41 per cent of SME operators in Auckland and 40 per cent in Wellington, than across the rest of New Zealand, where 58% are forecasting deteriorating economic conditions. The notable exception is Christchurch, where 57 per cent of SME operators say New Zealand's economy will decline in the next year.

A tale of two cities

"One of the notable areas in the research is the changing growth pattern in Christchurch, where the proportion of businesses reporting revenue growth has fallen 16 percentage points since our last survey, to be nearly equal with those seeing revenue fall," says Scollay.

"This highlights the difference in the effect of the city's rebuild now it has reached its predicted plateau," he says.

"However, after coming off previously unseen highs in activity, businesses in the city remain confident of growth, with 38% forecasting their revenue will improve in 2016.

"Also encouraging is the steady level of growth we are seeing in Auckland, which remains the driver of the economy with 37% of businesses in the city reporting improved revenue over the last year.

"And while we can clearly see some regions are already feeling the effect of the slowdown in the dairy industry, other rural areas like Northland, Bay of Plenty and the Manuwatu/Wanganui region are holding up well.

Market more competitive

In a sign of the growing competition for the consumer dollar, attracting new customers (23%) and competitive activity (22%) are picked to be the key pressures businesses will face over the next 12 months. Cashflow, price margins and the cost of fuel are all equal on 20%.

"What's clear from this latest survey is that New Zealand's SMEs are starting to feel the effects of an economy that is coming off its peak," says Scollay.

"However, despite seeing very real examples of the international headwinds we face over the next 12 months – including falling commodities prices, stock market turmoil and uncertain growth in China – the large majority are still forecasting either growing or stable revenue into 2016," he explains.

"SMEs seem to be reinforcing prudence over panic – being aware of the challenges to attract customers in an increasingly competitive market, while maintaining investment in retaining customers, improving their IT systems and processes, and managing their margins.

"New Zealand's SME community has built up an incredible resilience over the past seven years. They are well run, versatile and committed – and I believe that is the best possible preparation for any changes in the economy.