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Grant Thornton report sees brighter outlook for 2012

News release

3 January 2012

Grant Thornton report sees brighter outlook for 2012

New Zealand businesses are looking to 2012 with renewed confidence, according to the findings of the latest Grant Thornton International Business Report (IBR).

The quarterly survey noted a cautious increase in optimism; with many indicators pointing to growth plans among employers and most employees will get a pay rise this year. Expenditure on Research and Development, however, looks set to take a back seat.

After a bullish outlook early in 2011, business confidence dipped last quarter but has now taken an upturn with 36 per cent of respondents more upbeat compared with 32 per cent in the previous period.

This contrasts with New Zealand’s major trading partners who are viewing the New Year less favourably. Confidence among Australian businesses declined for the fourth consecutive quarter, now standing at 24 per cent; the US at one per cent and the UK at minus 35.

Peter Sherwin, partner, Grant Thornton New Zealand, said that in Australia the recession had been masked by the profitable extractive sector but the wider business sector was now beginning to experience a lack of demand coupled with signs that the property bubble is about to burst.

“In New Zealand our rural sector has a far more widespread effect because there is barely a city, town or province which does not have some farming component. The benefit is that when the rural sector is doing well it feeds right throughout New Zealand. There’s a far greater distribution of benefits than from the extractive industry in Australia, which is far more geographically defined.”

Sherwin said that while tourism was challenging, New Zealand had been able to swop the traditional visitor markets of Europe and the US for Australia and China.

Higher dairy prices have also had a flow on effect to trends predicted for 2012. More than half of respondents (56 per cent) are expecting increased revenues and 47 per cent are planning to invest in plant and machinery.

However, Sherwin was concerned at the dip in those businesses planning to invest in Research and Development, now at minus four per cent.

“R&D traditionally takes a back seat when there is a constrained economic environment and profitability is hammered. But it’s a worry. You can’t reduce the investment in R&D for a sustained period without killing your business.

“If we want to take New Zealand into a fully developed economy moving up the OECD scale, we will have to do more than export primary produce. I think this anticipated decline in R&D investment is a real danger signal. It’s a call to action and it needs leadership from the Government to help businesses be more open to R&D,” Sherwin said.

The survey indicates that businesses are cautious about employment opportunities over the next year with 26 per cent expecting to increase their workforce, a significant drop of 23 per cent compared with the previous corresponding quarter. But, at the same time, they see a lack of skilled workforce as a major impediment to growth in 2012.

Sherwin attributed the apparent discrepancy to an overall caution among employers after “a couple of false dawns” but they did signal concern about availability of skilled workers ¬ 39 per cent, which was 12 per cent higher than the previous corresponding period in 2011.

“We have unemployed people but do they have the skills for the jobs that are going to be available. This gets back to one of the real challenges for New Zealand, which is to get a better match between tertiary education and industry. I think there is a clear disconnect between what the education system is producing versus industry demands.”

Sherwin called for a tripartite collaboration among industry, the education sector and government to improve the “connection.”

Good news for employees in the report was that 79 per cent of employers were planning to provide workers with a pay rise over the year, a marked increase from last year. Of those, 62 per cent said the salary increase would be in line with inflation and 17 per cent said it would be by more than inflation.

-Ends

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