Editorial: Rising business confidence exactly what New Zealand needs

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THREE KEY FACTS:
EDITORIAL
Light at the end of the tunnel? Green Shoots? Call it what you want, a sense of optimism is seeping back into the business community.

As the Herald’s Mood of the Boardroom survey demonstrated yesterday, the country’s top chief executives are the most optimistic
about the economy they have been since 2016.

There is a clear notion the economy has bottomed out and trading conditions are improving. This sentiment mirrors other recent business confidence surveys and seems largely driven by the withdrawal of monetary policy restrictions with interest rates starting to descend.
A telling statistic in the survey was the 61% of business leaders saying they expected to report more revenue over the next 12 months and 55% expected higher profits. That’s up significantly on the same time a year ago and signals a tick up in consumer spending is on the cards.
But let’s not start popping the champagne just yet.
Many businesses are still under immense pressure and bosses are expecting to hire fewer staff while cutting back forecasts on things such as IT expenditure.
The recent listed company results highlighted the difficult challenges many firms are dealing with, with only five firms out of 31 reporting results ahead of earnings-per-share expectations, with six in line and 18 below expectations, according to a Forsyth Barr analysis.
Many businesses were also rocked by a spike in energy costs and concern over future supply.
Energy price increases topped the list of domestic concerns with executives troubled by the rapid escalation and volatility in energy costs, undermining manufacturing competitiveness.
The spectre of three pulp and paper mills closing in the North Island was a testament to that. Likewise, a proposal to close a meat processing plant in Timaru looms as devastating for about 600 staff affected.
The retail sector continues to feel the pinch, with the latest spending data from Worldline revealing all regions showing a decline in spending year-on-year.
The data for September 2024 showed consumer spending with core retail merchants (excluding hospitality) in its payments network was down 3.4% compared to September 2023.
This continues the trend of recent months with the last quarterly survey showing 71% of Retail NZ members failed to meet sales targets last quarter.
The geopolitical situation is also unsettling, in particular the escalating conflict in the Middle East, leading to some increased uncertainty.
But when it comes to the domestic scene, it’s the forward-looking aspect of the Mood of the Boardroom that’s encouraging.
While many of the country’s top executives remain cautious there is broad consensus that the fall in interest rates should lead to a more favourable domestic business environment.
“Survive to 2025 has become survive through 2025,” says Kirsten Patterson, chief executive of the Institute of Directors. “There are some green shoots showing but I am not sure the national and global economic environment is right to nurture those properly yet.”
It’s been a tough two years and we remain in the shadow of recession with unemployment still rising.
But interest rates are on the way down and barring some international meltdown, the economy should recover.
The key message is to hang in there.
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