More optimism among companies about the economy – survey

The survey also found that the number of companies expecting to raise prices fell from 52 percent in 2024 to 34 percent. (file image)
Photo: RNZ/Rebekah Parsons-King

More than half of business leaders are more optimistic about the economic prospects for the next 12 months, despite continued difficult trading conditions.

A survey of 200 business leaders by consultancy Grant Thornton New Zealand found 2 percent were “very optimistic” about economic conditions, while 51 percent were somewhat optimistic.

“It’s really encouraging to see such high levels of optimism across a wide range of businesses, despite the current doom and gloom,” said Greg Thompson, Grant Thornton business advisory partner in New Zealand.

“A change in government, some business-friendly policies, a leveling off of inflation and the Reserve Bank’s hold on interest rate hikes will have contributed to this increase in optimism.”

However, demand for goods and services fell: 16 percent of companies faced a shortage of orders, compared to 9 percent in 2023.

The survey also found that the number of companies expecting to raise prices fell from 52 percent in 2024 to 34 percent.

“Last year’s inflation levels provided a once-in-a-lifetime opportunity to raise prices to maintain margins. More price increases are unlikely in today’s market as consumers become increasingly conservative about their spending,” Thompson said.

“Instead, business owners will adopt good business practices to maintain profitability, such as letting go of underperforming products and services, eliminating D customers, creating efficiency and productivity gains, and upgrading outdated technology.”

He said many businesses struggled to grow sales last year, with half of respondents seeing sales growth of more than 5 percent, compared to 40 percent this year.

However, companies were keeping a closer eye on cash flow and forecasts, with 16 percent seeing access to capital as a major barrier to growth as banks’ risk appetite declined.

He said some parts of the economy were more optimistic than others, with only certain sectors seeing large-scale layoffs in the workforce.

The research found that workforce issues were also holding back business growth, with almost half (49 percent) of respondents reporting that the availability of skilled workers was a significant barrier to their business growth.

However, Thompson said this is unlikely to have a negative impact on salary and wage growth over the next twelve months as there is little change in the number of companies planning to increase salaries by more than inflation this year ( 10 percent), compared to last year (11 percent), although more countries planned to implement increases in line with inflation (39 percent) compared to (33 percent) in 2023.

“Owners are responding pragmatistically by investing to retain the skilled talent they currently have in such a competitive labor market – another key indicator of the optimism currently prevailing,” he said.

“In the long term, they want to maintain their workforce so that they are ready when the economy picks up again.”