SMEs Seeing First Signs of Slowdown

SMEs Seeing First Signs of Slowdown

51% of local SMEs expect economy to decline

More than half of New Zealand’s SME operators are expecting the economy to slow over the coming year, but their current performance and forecasts for the coming year suggest they’ll avoid anything more serious, according the latest MYOB Business Monitor survey of over 1000 businesses nationwide.

Over the next 12 months, 34 per cent of SME operators expect their business revenue to increase – down from 40 per cent in the February survey – while a further 41 per cent are forecasting stable revenue. The number of businesses expecting revenue to drop over the next 12 months in the nationwide survey conducted for MYOB by Colmar Brunton, has almost doubled from 11 per cent in February to 21 per cent.

MYOB New Zealand General Manager James Scollay says while both global and local economic factors are weighing on local SME operators, they are not hitting the panic button.

“Our local SME operators are clearly seeing some downside risk for 2016,” says James Scollay. “But the key point to make is their performance expectations are not falling off the cliff. We are seeing a considerable rise in the number of businesses who expect their own growth to come off current levels, but more than a third of SMEs still expect to grow in 2016.”

Growth levels for SMEs have remained consistent over the last six months, with 31 per cent reporting improved revenue in the year to August, compared to 32 per cent in February, while 41 per cent have maintained stable revenue (44 per cent in February).

Pipeline work booked for the next three months has shown a similar pattern, with 31 per cent saying they have more work currently on the books, down from 37 per cent in February. Almost a quarter (22%) have less work on, a jump from 13 per cent in the earlier Business Monitor survey.

Decline expected in overall economy

Over half (51%) of all SME operators expect the economy to decline in the next year, 12 per cent of them significantly, while just 21 per cent expect to see it improve.

Fewer business operators in the major centres expect the economy to decline, including 41 per cent of SME operators in Auckland and 40 per cent in Wellington, than across the rest of New Zealand, where 58% are forecasting deteriorating economic conditions. The notable exception is Christchurch, where 57 per cent of SME operators say New Zealand’s economy will decline in the next year.

A tale of two cities

“One of the notable areas in the research is the changing growth pattern in Christchurch, where the proportion of businesses reporting revenue growth has fallen 16 percentage points since our last survey, to be nearly equal with those seeing revenue fall,” says James Scollay.

“This highlights the difference in the effect of the city’s rebuild now it has reached its predicted plateau. However, after coming off previously unseen highs in activity, businesses in the city remain confident of growth, with 38 per cent forecasting their revenue will improve in 2016.

“Also encouraging is the steady level of growth we are seeing in Auckland, which remains the driver of the economy with 37 per cent of businesses in the city reporting improved revenue over the last year.

“And while we can clearly see some regions are already feeling the effect of the slowdown in the dairy industry, other rural areas like Northland, Bay of Plenty and the Manuwatu/Wanganui region are holding up well.”

Key industries

SMEs in key sectors have maintained growth this year, led by the retail and hospitality sector, in which 39 per cent of operators are reporting revenue growth, up from 36 per cent in February. Also improving are the business, professional and property sector, (37 per cent increased revenue, up from 36 per cent) and the finance and insurance industry (36 per cent up from 20 per cent).

Although seeing an improvement in the number of businesses reporting increased revenue – now up to 33 per cent from 28 per cent in February – the manufacturing industry is more finely balanced, with a third reporting revenue falls in the year to August. The construction and trades sector has fallen somewhat, down to 30 per cent of operators reporting growth, from 35 per cent earlier in the first quarter.

Hiring intentions, pay improve

Underscoring the level of confidence still remaining in the SME sector, hiring intentions have lifted slightly. Nine per cent of businesses say they plan to take on more full time staff in the next year, rising from 7 per cent in February. Eleven per cent will hire more part time employees, and 20 per cent plan to put more in their employee’s pay packets in the year to August 2016.

Possibly shifting the dial on inflation, a quarter of SMEs plan to put prices up in the next year.

Market more competitive

In a sign of the growing competition for the consumer dollar, attracting new customers (23 per cent) and competitive activity (22 per cent) are picked to be the key pressures businesses will face over the next 12 months. Cashflow, price margins and the cost of fuel are all equal on 20 per cent.

“What’s clear from this latest survey is that New Zealand’s SMEs are starting to feel the effects of an economy that is coming off its peak,” says Mr Scollay.

“However, despite seeing very real examples of the international headwinds we face over the next 12 months – including falling commodities prices, stock market turmoil and uncertain growth in China – the large majority are still forecasting either growing or stable revenue into 2016.

“SMEs seem to be reinforcing prudence over panic – being aware of the challenges to attract customers in an increasingly competitive market, while maintaining investment in retaining customers, improving their IT systems and processes, and managing their margins.

“New Zealand’s SME community has built up an incredible resilience over the past seven years. They are well run, versatile and committed – and I believe that is the best possible preparation for any changes in the economy.”

ENDS

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