Deteriorating demand - rather than inflation, regulation or labour shortages - has emerged for the first time as the biggest challenge facing businesses, Forsyth Barr’s third Pulse of New Zealand Business survey shows.
The report, which surveyed about 550 respondents, said one in four respondents cited demand as their biggest challenge. Labour availability, which was the biggest challenge 18 months ago, was now only cited by one in ten as their biggest challenge.
The survey also showed a "major positive shift" that the economy was heading in the right direction. That move was from an extremely negative position to a largely neutral one.
Recent business confidence surveys had indicated a continued deterioration in current activity as well as outlook. The investment firm’s survey corroborated that sentiment but added some nuance.
Businesses were clearly more optimistic about New Zealand overall and the new government had injected "some much-needed" optimism into the business community, it said.
Forsyth Barr’s last pulse survey was completed just prior to the general election when sentiment within the business community on the direction of the economy and, in particular, on the then government, was at "rock bottom".
It was still early days for the National-led government and two-thirds of respondents said it was moderately supportive or too early to tell.
There was a clear and widening spread between more cyclical business, such as freight, construction and manufacturing, all of which were experiencing weak and weakening demand versus less cyclical sectors, primarily aged care and utilities, which were utilities experiencing improving demand and expected profits to improve over the next 12 months.
Aged care stood out out as the most improved sector; about 90% of respondents were now expecting improved or flat profits next year, and 60% indicated improved demand year-to-date - "encouraging signs that we may have passed the worst", the survey said.
Challenges of regulation and inflation remained stubborn. While cost inflation had slipped to the number two issue for businesses, that change had largely been driven by the increased demand challenge.
Businesses continued to push through broadly in line with CPI price increases with aged care, utilities and agriculture undertaking higher-than-CPI increases on average while retail, financial services and manufacturing sectors indicating below-CPI price increases.
Regulation remained the number three issue for respondents for the third consecutive survey with the change in government and view from businesses not impacting the responses.
