Senior business leaders’ optimism on the New Zealand economy has surged.
Respondents to the Herald’s 2024 Mood of the Boardroom survey rated their confidence in the New Zealand economy at 3.23/5 on a scale of 1-5, where 1 signifies “much less optimistic” and 5 represents “much more optimistic”.
This year’s score is a significant improvement from last year’s 1.82/5.
Read more from the Herald’s 2024 Mood of the Boardroom series
In fact, this is the highest score for optimism in the New Zealand economy since 2016, when the previous National-led Government was in power under the prime ministership of Sir Bill English (3.6/5).
There is broad consensus that the fall in interest rates should lead to a more favourable domestic business environment. However, many business leaders caution that the journey to full recovery is far from over.
“Survive to 2025 has become survive through 2025,” says Kirsten Patterson, chief executive of the Institute of Directors. “There are some green shoots showing but I am not sure the national and global economic environment is right to nurture those properly yet.”
Many of the country’s top professional directors echo this cautious optimism.
A retail sector director acknowledges the positive signs but remains wary: “There are definitely some green shoots but discretionary spending will continue to be constrained and unemployment will lift in the short-to-medium term.”
A similar sentiment comes from a tech sector director: “I see green shoots with the policies the National Government is starting to implement, but I still believe there is a long way to go to remedy some of the economic struggles and societal division that we are facing into.”
Despite the current economic difficulties, there is hope that things will soon improve.
Morrison CEO Paul Newfield is optimistic: “New Zealand is doing it tough at the moment, but we seem to be getting inflation under control, so hopefully that flows through to lower interest rates and more supportive economic conditions.”
Deloitte chair Thomas Pippos shares a similar outlook.
“The sense is that we have bottomed out and while we may bounce around the bottom over this next period, the expectation is that trading conditions will improve.”
CEO optimism in the global economy has also seen a boost, climbing to 3.06/5 from 2.23/5 in 2023. Though again, this is tempered by caution, as global uncertainties persist.
“The geopolitical and economic uncertainties globally mean we are not immune from further headwinds,” warns Dame Therese Walsh, chair of Air New Zealand and ASB.
A professional director shares this concern, citing major international factors: “It’s hard to feel comfortable when two of the biggest economies in the world — China and US — are (for differing reasons) continuing to be sluggish.”
As is typical in this survey, chief executives expressed more optimism about their own industries than they did about the broader New Zealand or global economy, with a weighted average score of 3.34/5.
This is a significant rise from last year’s 2.47/5, indicating that while broader economic concerns persist, many industries are seeing a potential pathway to growth.
The real estate industry topped the list with an average score of 4.33/5, a substantial jump from last year’s 2.60/5.
Barfoot & Thompson managing director Peter Thompson explains, “Whilst we are positive with the outlook for sales, people are still struggling with paying their current high interest rates and it will take some time for this to come back to levels where they will be free to look at either upgrading or downgrading, without breaking their current mortgages.”
Healthcare and pharmaceuticals, as well as utilities, energy, and extraction, also showed strong confidence, each scoring 4.00 out of 5. The agriculture and agribusiness sector followed closely with a score of 3.86.
In the retail and consumer goods sector, optimism reached 3.33/5.
Foodstuffs North Island CEO Chris Quin is hopeful, saying, “We are optimistic about inflation continuing to fall — food was the first major category to show near or below zero price increases”.
Though he recognises that we are not out of the woods yet.
“Our industry is impacted by many issues, including ongoing global supply chain disruptions, elevated energy costs, and the potential for overseas economic shocks that put pressure on costs — orange juice is the latest.”
The construction and entertainment/leisure sectors recorded some of the lowest levels of confidence, both at 2.00/5. Tourism Holdings Limited CEO Grant Webster remarked: “Having been in several of our key trading countries in the past few weeks, it is evident NZ is more depressed than anywhere else.”
Education received the lowest optimism score of all, at just 1.80/5, reflecting ongoing challenges and uncertainties in the sector.
Executives were asked to assess their concerns on various domestic issues, and despite the improved optimism in the economy, several high-scoring challenges persist.
Energy-related concerns have surged to the forefront of business anxieties this year.
Energy price increases topped the list of domestic concerns, scoring 7.55/10 on a scale where 1=”no concern” and 10=”extremely concerned”, with executives troubled by the rapid escalation and volatility in energy costs. Closely following, with a score of 7.45/10, is the reliability of energy supply. The interconnectedness of these concerns underscores the pressure businesses face from the energy market.
Inflation and cost of living pressures remain significant, scoring 7.48/10.
Blair Turnbull, CEO of Tower, highlights the ongoing challenges: “Cost of living is an immediate concern and something we’re very focused on. We’re seeing continued strong retention as New Zealanders value their insurance and are prioritising premium payments. We’re helping customers with ways to lower premiums and improving business efficiencies to remain competitive. As inflation has begun to settle, we’ve already adjusted our pricing, and we expect to see pricing increases ease further toward the end of the year.”
Interest rate levels are also a pressing issue, scoring 7.14/10 and the Reserve Bank’s management of the Official Cash Rate (6.76/10).
An agribusiness chair noted, “Due to New Zealand debt levels, the economy is shrinking faster than expected and the Reserve Bank have been too slow to cut interest rates. The next year will see massive drops to stimulate the economy.”
Other notable domestic concerns include cyber threats (7.01/10), rising insurance costs (6.97/10); and climate change policies (6.72/10).
Paul Newfield, CEO of Morrison, offered a broader perspective on the factors holding New Zealand back: “In global terms, we benefit from a relatively open economy, low levels of corruption, and high levels of transparency.
“What’s really holding us back is lack of capital, short-term thinking, and not enough global ambition. That’s more on business leaders to solve than it is on politicians.”
“Lack of long-term thinking and joint public-private sector engagement on options is impacting business confidence,” notes KiwiRail chief executive Peter Reidy.
The lack of societal cohesion and its impact on economic stability was also raised as another point of concern.
Bagrie Economics managing director and chief economist Cameron Bagrie warns of the “division across society,” describing it as “economically and socially corrosive”.
AUT Chancellor Rob Campbell adds that the “instability and uncertainty of social, economic, and environmental conditions dominate.”
Concerns directly related to Government and its policies have receded compared to last year.
The level and quality of Government spending, for instance, scored 6.60/10 this year, down from 8.17/10 in 2023. “The volume of public sector spend has reduced significantly as expected following the change in Government and as countries seek to balance accounts following the additional spend during Covid,” says Beca executive chair David Carter.
Foodstuffs’ Quin says he sees some promising signs with a new Government now in office:
“There’s a renewed focus on investing in critical infrastructure, a stronger emphasis on law and order (which our store teams know firsthand is much needed), and a more thoughtful approach to how public money is spent.
“One positive lesson from Covid was that New Zealanders would align and act as a team.
“Business needs to do this, speak up, and focus to play its part in the solution.”
Finding suitably skilled staff remains a significant challenge, though the situation is showing signs of improvement. The Mood of the Boardroom survey asked executives how easy it has been to recruit a suitably skilled and qualified staff member.
On a scale of 1-5 where 1= “very hard” and 5= “very easy”, the average score was 3.37/5. Despite the relatively high score, responses varied depending on the sector and the specific roles being filled.
For some sectors, the recruitment landscape has seen marked improvements, largely because of recent redundancies in the market.
The head of an engineering consultancy observes “There are great people in the market because of the rightsizing that is happening across the economy. The challenge is that with the downturn in the infrastructure market, we are seeing more people looking to head overseas for the larger projects.”
Carrie Hurihanganui, CEO of Auckland Airport, agrees, noting that conditions have “improved considerably from last year, but still challenging to get some of the highly skilled roles we are looking for.”
In hospitality, Craig Bonnor from Cordis Auckland says “Things have improved from the same time last year”. Freightways director Mark Cairns echoes this sentiment: “Much better than last year.”
Paul Newfield, CEO of Morrison, says though New Zealand continues to produce great talent and attract investment, the small investment management ecosystem presents challenges. “We often need to look to Australia to recruit highly specialised roles. Ultimately that’s a consequence of New Zealand’s low retirement savings rates and small capital pools,” he explains.
Dame Therese Walsh, chair of Air New Zealand and ASB, highlights the ongoing difficulty in sourcing specific skill sets: “Certain cohorts of skilled labour such as engineers and data scientists still hard to come by. In other areas, key issues for attracting talent are culture and wages.”
The CEO of a major research firm says that it is hard to attract both technical/specialist staff as well as those for corporate roles. “We are getting a lot of applications, but usually lower quality than desirable. We are struggling to reconcile candidate pay and benefit expectations versus our assessment of their skills and qualifications.”
KiwiRail CEO Peter Reidy highlights a persistent issue in his industry, stating, “Technical rail expertise is a global issue, with New Zealand’s attractiveness reducing for offshore recruitment compared to Australia.”
Chris Quin, CEO of Foodstuffs North Island, believes the situation is improving, but underscores the need for New Zealand to remain an attractive destination for global talent.
“Access to skills and talent has gotten better. While New Zealand is increasingly open to talent we need to keep working on being an attractive option for people who have the skills we need and want to make New Zealand a home for them and their families. If we’re going to have more open immigration policies, we need to respect, value and welcome the people who choose to live and work here.”
Dame Therese Walsh, ASB and Air New Zealand
1. The health system in NZ is clearly in crisis. It needs further investment albeit this is hard to achieve in current financial situation.
2. Infrastructure deficit — the three-year election cycle and lack of bi- or multi-partisan planning is leaving us in a difficult situation. We need to de-politicise this.
3. AI — I think this country is lagging in this area. We need to get a New Zealand strategy and key talent pointed at it to help unlock productivity gains.
Les Morgan, Sudima Hotels
1. NZ continues to walk a fine line with the China v USA relationship. We have to remain careful with our rhetoric.
2. .Job growth is a key headline for any government. We need to see some initiatives to stimulate this issue. The immediate start of big infrastructure projects would aid this.
3. Our tourism international industry or NZ Inc is in danger of losing market share. The government must intervene more directly.
Kirsten Patterson, Institute of Directors
1. We need more cross-party planning on key national strategies like infrastructure investment and the structure of our national institutions.
2. Size and scale. We need more people to scale our businesses and our country. Improve immigration settings. Greater size and scale would allow us to address some of the issues like housing.
3. Changing demographics and social cohesion with ageing population and changing ethnic makeup. Greater national unity messaging.
Mike Horne, Deloitte
1. Need for more ambition and long-term planning and direction, greater international connectivity and investment attractiveness, stronger cross-party infrastructure planning.
2. Falling education standards and the need for greater focus on STEM. Start with more prescriptive building blocks, focus on equity of access to technology and the need for far clearer pathways into careers.
3. Greater productivity. Need for greater incentivisation of R&D, capital investment, FDI, and more flexible regulatory settings.
Many business leaders rate the Opposition Finance Spokesperson highly.