NZ business optimism surges past Australia

Media release

NZ business optimism surges past Australia

Thursday 7 July 2011

Business confidence in New Zealand continues to lift after it dipped late last year and is now well ahead of Australia and sitting comfortably in the upper half of 39 countries surveyed in the latest Grant Thornton International Business Report (IBR).

While internationally recovering levels of business optimism hit a wall in the second quarter of 2011, New Zealand was one of only 15 countries where business optimism grew in this period.

The research reveals that across many countries there has been a dramatic quarter-on-quarter decline in levels of business optimism, led by the ‘Lucky Country’ Australia.

Peter Sherwin, partner, Grant Thornton New Zealand, Wellington, said that Australia’s 44% decline in confidence from 2010 to 2011 was the highest for any country surveyed and was fresh evidence that the declining housing market, exceptional strong dollar that was impacting on tourism and the recently introduced “flood tax” were all starting to weigh heavily on Australians’ minds

“Australian confidence levels sit at 26 per cent, only 4 per cent above Ireland and well behind New Zealand’s 52 per cent. A recent Australian survey indicated that 40 per cent of Australians believed they were worse off than a year ago and were borrowing to sustain their standard of living,” he said.

Sherwin said that detailed study of the underlying information that backs these figures also showed a much more positive New Zealand compared with Australia.

“Maybe we are starting to close the gap afterall? Compared with a year ago, a net 12 per cent more New Zealand businesses are looking to invest in plant and machinery, compared with -7 per cent in Australia. When this is matched with the fact the employment intentions of New Zealand companies are increasing, whereas Australia’s are declining, then a growth pattern is starting to emerge. A comparison between the first and second quarters shows a 27 per cent increase in the number of New Zealand companies looking to employ staff compared with a 9 per cent decrease in Australia.

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“This is further reinforced by the fact that a net 78 per cent of New Zealand businesses expect to increase wages in the next 12 months, which is up from 55 per cent a year ago, compared with 69 per cent in Australia. The Australian figure is down from 78 per cent in 2010.

“The lift in business expectations in New Zealand between Q1 and Q2 is startling and in some sectors has doubled. Compared with Q1, the number of businesses looking to employ has jumped from 15 per cent to 42 per cent, investment in new buildings from 12 per cent to 26 per cent, plant and machinery 29 per cent to 60 per cent and research and development from 14 per cent to 30 per cent.

“These sectors are the building blocks of the economy,” he said.

On the flip side of wage and employment growth is the concern from many businesses that the tightening labour market and lack of skilled workers will start to impact. Forty four per cent of companies noted this as a concern compared with 35 per cent from a quarter ago. Australia is the opposite where the number of concerned companies is actually dropping. Negotiating red tape was noted in both countries as a problem,” he said.

The survey also indicated that growth in New Zealand will be underpinned by support from banks. Fifty-four per cent of New Zealand businesses think that the banks are very supportive with another 24 per cent believing them to be supportive, an impressive 78 per cent, one of the highest rates of the countries surveyed.

In other parts of the world, the fall in confidence during the second quarter is most acute in Latin America, where optimism fell 15%. Argentina, Brazil and Chile, key economies in the region, saw optimism fall by 30%, 24% and 10% respectively in the second quarter of the year. The BRIC group of economies fell collectively by 13%. Globally, business optimism has fallen by 3% from the previous quarter although it is 4% higher over the year.

The report said that in global terms the past three months have been challenging and business optimism has been hit hard.

“Companies are feeling the effects of the unrest in the Middle East and the subsequent volatility in oil and commodity prices, which recently led western nations to release large stocks of oil. In addition, the earthquake and nuclear disaster in Japan caused huge disruption to supply chains.

“Fears about rising inflation across Latin America will weigh on business optimism. Inflation is currently running at more than 6% in Brazil and almost 10% in Argentina. The worry amongst businesses there is that inflation will continue to rise and that their economies will overheat. Our research tells us that over half the businesses in the region (54%) expect to increase prices, and with tight labour markets also making it difficult for those businesses to keep wages down, such fears look warranted,” the report concluded.

ENDS

Notes to editors

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 11,000 businesses per year across 39 economies. This unique survey draws upon 19 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com.

Data collection

The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach. Telephone interviews enable Grant Thornton International to conduct the exact number of recommended interviews and to be certain that the most appropriate individuals are interviewed in an organisation which meets the profile criteria.

Data collection is managed by Grant Thornton International's core research partner - Experian. Questionnaires are translated into local languages with each participating country

having the option to ask a small number of country specific questions in addition to the core questionnaire. From 2011, fieldwork takes place on a quarterly basis every quarter with fieldwork lasting approximately one month and a half.

Sample

IBR is a survey of medium to large privately held businesses*. The data for this release are drawn from interviews with 2,697 businesses across the globe conducted in May/June 2011.

The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 39 economies primarily across five sectors: manufacturing (25 per cent), services (25 per cent), retail (15 per cent) and construction (10 per cent) with the remaining 25 per cent spread across all sectors.

Locally, the sample tends to cover the sectors mentioned previously, with some countries being able to have local valid data for specific sectors or regions when the sample size is large enough.

Group/region Economies included in IBR
Asia-Pacific (APAC) Australia, Hong Kong, India, Japan, China (mainland), Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, Vietnam
Association of Southeast Asian Nations (ASEAN) Malaysia, Philippines, Singapore, Thailand, Vietnam
BRIC Brazil, Russia, India, China (mainland)
European Union (EU) Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Poland, Spain, Sweden, United Kingdom
G7 Canada, France, Germany, Italy, Japan, United Kingdom,

United States of America
Latin America Argentina, Brazil, Chile, Mexico
Nordic Denmark, Finland, Sweden
North America Canada, United States of America

*some counties may include a small proportion of listed businesses in their sample when reporting locally.

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