Confidence in New Zealand’s economic outlook has improved amongst the SME sector, with optimism growing despite tough trading conditions continuing over the last quarter and most anticipating another challenging Christmas trading period.
The latest MYOB SME Snapshot – a nationwide survey of 500+ SME owners and decision-makers – has revealed that almost half (48%) of local SME operators believe New Zealand’s economy will improve over the next 12 months, while 30% expect it will decline and 19% believe it will remain the same.
The sharp rise in confidence – up from March 2023 when just 16% of SMEs expected an improvement in the economy over the 12 months to March 2024, and 69% forecast a decline – comes despite a difficult period for many local businesses.
Reflecting on the last quarter, most (45%) SME operators say their business performance or sales were below expectations for the past three months, while 42% say it was on par with expectations and just 13% claim their performance exceeded expectations.
MYOB General Manager – SME, Emma Fawcett, says despite the strong confidence signals SMEs are sending for 2024, the last year has been extremely tough and a number of challenges remain over the short term.
“Relentless inflationary pressures have loomed large for most SMEs and despite expectations they could see an improvement in the economy in the next year, inflation, interest rates, and cashflow and profitability all remain key areas of concern as we go into the next six months,” explains Emma.
“Casting our focus to the more immediate term, and we can see local businesses are also bracing themselves for another trying festive period.”
Another difficult Christmas ahead
For more than a third (36%) of New Zealand’s SMEs, the Christmas and New Year period is considered an important contributor to their annual income and revenue. For 1-in-10 of these business owners, this time of year is ‘extremely’ important to their revenue.
The cost-of-living crunch was widely felt last Christmas and the upcoming holiday season appears to bring little more to celebrate. While most SMEs are expecting their revenue for the festive season this year to be about the same as last year, a quarter (25%) are expecting a decline.
“While on the surface, the fact that most SMEs are expecting to match the revenue they achieved last Christmas may seem somewhat heartening, it’s important to keep in mind that this is off a low base given the continued declines over the last few years following the advent and aftermath of the pandemic,” explains MYOB’s Emma Fawcett.
“However, we can see that local businesses are taking action to try to keep revenue steady over what is a vital trading period for many of them – applying changes in step with consumer spending behaviour, like running more sales and promotions.”
Balancing act between promotion appeal and pricing pinch
While consumers continue to be more cost-conscious and in turn, more attracted to sales and promotions, the impact of inflation on SMEs sees businesses making tough calls as they seek to balance efforts to keep revenue flowing while covering rising costs of their own.
As a result of inflationary pressures over the last 12 months, 46% of SMEs have absorbed some additional costs to keep prices lower, while the same proportion say they’ve had to pass on higher costs to customers in their prices. Additionally, 41% have also had to reduce their margins*.
Looking ahead however, New Zealand consumers are set to experience mixed fortunes when it comes to pricing of their local goods and services. While just over a third (34%) of SMEs plan to hold their prices at current levels over the next six months, 42% say they intend to increase their prices, and just under a quarter (24%) are undecided.
“It’s been a very tough balance for SMEs to protect their margins while absorbing rising costs, and for many that has been unsustainable, meaning they’ve had to pass those costs onto their customers,” says Emma.
“However, as we head into the New Year, we will hopefully see inflation and the resulting cost pressures continue to trend down for the benefit of local businesses and consumers. Respite cannot come soon enough.”
*SMEs could select more than one option that applied to their circumstances.