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Waikato businesses more optimistic

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Regional economic development agency Te Waka’s second Waikato Business Sentiment Survey shows business owners and managers are significantly more optimistic about their sector and the region’s economic performance than they were six months ago, but remain less confident in the country’s economic performance as a whole.

Conducted in partnership with local authorities, chambers of commerce, regional tourism operators, business associations and other economic development organisations, the survey provides insights to the performance of business in the prior six-month period and is an indicator of confidence looking ahead.

Between February 15 and March 12, 565 responses were collected online. This was consistent with the August 2020 survey (589) and had a greater response rate than the ANZ National Business Confidence Survey. Both surveys calculate net confidence by subtracting the percentage of those who believe the economy will improve from those who feel the economy will deteriorate.

Te Waka chair Hamish Bell said feedback from respondents across Waikato shows a marked increase in net confidence in the economy for the six months ahead for their own business (34 per cent), their sector (from -10 per cent to 11 per cent) and the region (from -14 per cent to 11 per cent). Confidence in New Zealand’s economy increased from -31 per cent to -3 per cent.

Thirty-three per cent of respondents reported increased sales for the full 2020 calendar year compared to 2019, and 45 per cent are forecasting increased sales compared to the same period last year, particularly in health services, manufacturing and construction.

Bell said stronger sales have contributed to a more robust outlook for manufacturing, construction and retail trade; however, supply chain issues, increasing price of goods, and skills shortages – notably in management and specialised technical skills – are affecting productivity in construction, manufacturing, primary industries and transport.

“The Covid-19 border restrictions appear to have highlighted under-investment in people and skills. Not only demand for skills but inability to meet that demand is a disturbing trend.”

Waikato Regional Council principal economist Blair Keenan said that for all the concerns about the effect of the border closures on the ability to access suitable labour, 48 per cent of respondents identified the shortage of skilled New Zealand residents as a problem, compared to just four per cent who thought it was a problem of a lack of skilled immigrants.

“A better understanding of precisely what kind of skills we’re lacking is an important piece of information that needs to be explored,” said Keenan.

Bell said while it’s encouraging to see businesses investing in business, financial, personnel and continuity planning, there are still about 25 to 50 per cent of businesses with 11 or more employees who do not have planning tools in place, and 45 to 72 percent of small businesses of up to 10 employees without planning tools.

He said the region was also seeing the impact of supply-side issues on both import and export industries, with 58 per cent of respondents in those sectors considering raising prices.

Keenan said the emergence of supply-side issues “have the potential to derail the recovery, for example through higher inflation and a subsequent policy response from the Reserve Bank of New Zealand”.

Hospitality and tourism are still bearing the brunt of Covid-19, having recorded 74 per cent reduced sales, and 17 per cent of these recorded 50 per cent or more reduction in sales. “The hospitality and tourism sector sees its prospects remaining relatively bleak, with two-thirds of respondents expecting business to worsen in the coming months.”

The survey pre-dates the announcement of a trans-Tasman bubble, and Keenan said the benefits of the bubble for the Waikato region may not be all positive.

“Setting aside public health issues, domestic tourism is important to the sector in Waikato, and the re-introduction of international options may effectively increase competition for the domestic market.

“Overall, the Waikato economy has weathered the Covid-19 recession better than we might have feared a year ago when the prospect of mass unemployment and deflation seemed a real threat.”

However, he cautions that while it is encouraging that Waikato businesses are optimistic about the region’s economic outlook, the recovery remains both patchy and fragile.

Bell agrees. “It’s encouraging that the survey and personal engagement with industry indicate broad optimism, noting the natural strengths of Waikato as a region, but we need to remain cautious about the concept of ‘the calm before a storm’.

“We can’t afford to become complacent. I’ve seen several economic downturns from the inside and hearing first-hand from businesses across the region of the challenges they are facing as the months have progressed.

“Having said that, the data expertly informs the big picture for our region but with clear, tactical detail, which helps Waikato have a stronger voice in advocating to government for support, with a clear message and one voice for Waikato business.”

The Waikato Business Sentiment Survey will continue to be conducted six-monthly, online. Te Waka uses the survey insights to guide its economic development work and delivery of business support services across Waikato, alongside regional partners.

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