Low economic confidence underpinned by revenue struggles, profitability declines, rising inflation, and the lingering impacts of the COVID-19 pandemic, is prompting more local SME owners and decision makers to seek a change in the country’s leadership, according to new data from the 2022 MYOB Business Monitor.

Conducted by Kantar, the nationwide survey of over 1,000 SME owners and managers – running annually since 2009 – highlighted that confidence in the economy was approaching levels last seen during the first outbreak of the pandemic in March 2020, with large numbers of SMEs reporting falling revenue and slowing quarterly activity.

More than two thirds (68%) of local SMEs believe the New Zealand economy will decline in the next 12 months. Over a quarter (29%) expect that decline to be significant, while in contrast just 16% of SMEs believe the economy will improve over the coming year.

MYOB Head of Go-to Market, Jo Tozer, explains that the steep decline in SME confidence follows a perfect storm of conditions negatively affecting business operations.

“If we just look back over the past six months, SMEs have had to navigate a tough second half of 2021, worsening supply chain disruptions and inflationary pressures, and a new COVID-19 outbreak hampering operations and staffing abilities in the first few months of this year,” says Jo.

“It was concerning when we saw the proportion of SMEs saying they expected the economy to decline reach 55% in October last year – up from 41% in March, but these latest confidence numbers are even more worrying. With the exception of when COVID-19 initially reached our shores and we entered the first nationwide lockdown in March 2020 – when 79% of businesses were expecting worsening economic conditions – this is one of the lowest levels of business confidence we’ve seen in the history of our Business Monitor survey.”

Government performance impacting confidence

The drop in economic confidence also brings bad tidings for the Government too, with half of the SMEs surveyed attributing some of their falling confidence in our local economy to the country’s leadership. 
 

When asked which top local factors are having the biggest impact on their level of confidence, government leadership came in third with 50% of businesses citing this as a top factor, after the ongoing impacts of the COVID-19 pandemic (62%), and the rate of inflation (55%).

Similar negative sentiment is also reflected by growing dissatisfaction amongst SMEs around the Government’s performance. Satisfaction has changed significantly over the past year, with the majority (60%) of SME owners and managers now saying they are dissatisfied with the Government’s performance over the last 12 months, including more than a third (35%) who are very dissatisfied. In comparison, MYOB’s 2021 Business Monitor showed 35% of SMEs were unhappy with the Government’s performance at the same time last year.

SMEs favouring leadership change

Most local SME owners and operators now appear to be looking for a change in the country’s leadership. Christopher Luxon has been revealed as a strong favourite among SMEs, with 42% naming the new National Party leader as their preferred Prime Minister. Prime Minister Jacinda Ardern follows at 25% in the preferred Prime Minister stakes, and ACT Party leader David Seymour sits at 9%.

National’s latest change of leadership has also won solid support from SME owners and operators, with 48% saying they’re satisfied with the new National party leadership team and only 19% expressing dissatisfaction.

“While historically our polling has shown National to be seen by SMEs as the political party with the greatest understanding of business, in the lead up to the 2020 General Election, we saw a very strong amount of support and satisfaction from SMEs for Labour and its leadership,” Jo explains.

“Although we saw some of this support for the party tail off in our SME Snapshot last September, Prime Minister Jacinda Ardern was still well ahead in the preferred Prime Minister stakes sitting at 40% ahead of Judith Collins’ 16%, so there has been a notable change in sentiment both towards the Government and Opposition from SMEs over the past six months or more.”

Profitability and pipeline taking a hit

As economic confidence continues to fall and SMEs weigh up government performance and support, the financial health of local businesses is equally unsteady.

Just over two-in-five (43%) SMEs reported their revenue is down on a year ago, compared to 39% in March 2021, while only 17% said their year-on-year revenue has increased. Further adding to concerns around cashflow and financial performance, half (50%) of New Zealand’s local SMEs said their business was less profitable over the last quarter, while only 15% reported an increase in profitability.

Looking ahead, unfortunately the future doesn’t appear much brighter. More than a third (35%) of SMEs expect their revenue to decline in the year to March 2023, while just 19% say they expect their revenue will improve. Thirty-nine percent expect it will stay the same.

And in the shorter term, while 42% of SMEs have the same amount of work lined up or sales in pipeline for this quarter (and 17% have more) compared with the same time last year, more than a third (38%) have less in the pipeline – a scenario no doubt influencing predictions around profitability, with 41% of SMEs expecting their business to be less profitable over the next three months.

“SMEs are at the heart of our local economy – from the jobs they create, to the goods and services they offer consumers, to the contribution they make to our wider communities – and their struggles over the past couple of years are well documented,” says Jo.

“The cost of doing business is increasing and considering the ongoing challenges they are facing, like supply disruption, rising employee and compliance costs, and skyrocketing inflation, the battle to maintain a steady cashflow could continue for some time. Now, all eyes will be on the upcoming Budget in the hope that it may bring some announcements that offer them a reprieve.

“Based on what has come through in our Monitor, we’re seeing a clear policy ask from SMEs. By far the most popular potential policy any political party could introduce is to reduce the business tax rate – a move supported by 44% of SMEs. This is likely because the move would help to offset many of the impacts they are currently seeing in an environment of rising costs and uncertain income,” she adds.

Other policies of most appeal to SMEs included making no changes to income tax (24%), increased investment in roads (22%) and changing the Resource Management Act (21%).

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