Firms opt to play it safe with their cash

Will economic growth be hurt by more local businesses saving money rather than spending it? Photo / Thinkstock

Global economic uncertainty has sparked a hefty increase in the number of New Zealand and Australian firms hanging on to money rather than spending it - potentially hurting economic growth, a survey says.

Financial services provider Ernst & Young's latest Capital Confidence Barometer says 30 per cent of Australasian respondents are focused on cash preservation, up from just 8 per cent six months ago.

"This is significantly above the global result of 19 per cent," the survey says.

Andrew Taylor, head of transaction advisory services for Ernst & Young NZ, said the trend of businesses opting to save rather than spend had the potential to negatively impact on Australasian economic growth.

"It's not surprising to see heightened risk aversion," said New Zealand Institute of Economic Research principal economist Shamubeel Eaqub.

"The degree of uncertainty in the global economy has shifted quite a bit in the last three months. Certainly what's happening in Europe is a big concern."

The report also suggests attitudes to global economic growth are particularly negative in New Zealand and Australia, with only 14 per cent of respondents feeling positive, compared with 44 per cent globally.

Taylor said the global economic environment - with growth slowing in the United States and Europe teetering on the edge of a sovereign debt meltdown - had made Australasian businesses more cautious with their cash.

"Therefore that cautiousness is causing [firms] to preserve capital, rather than the alternative, which is to spend it," he said.

Taylor said the high level of capital preservation compared with other regions might also reflect changes taking place in New Zealand and Australia's economies.

This country's gross domestic product expanded just 0.1 per cent in the June quarter, reducing the annual growth rate to 1.5 per cent from 1.7 per cent in March.

Across the Tasman, a Dunn & Bradstreet survey of business expectations for profit and employment in July was negative for the first time in two years.

The survey showed that sales expectations had plunged to a two-year low and the outlook for capital investment had fallen to the worst level in a decade.

Other findings from the Ernst & Young survey were more positive, with 41 per cent of Australasian companies expecting to make an acquisition within the next 12 months.

The report also showed that almost 60 per cent of Australasian businesses planned to maintain their current workforce, while a further 30 per cent expected to take on new staff next year.

The Capital Confidence Barometer surveyed 1000 executives around the world in August, including 100 from Australia and 10 from New Zealand.

THE OUTLOOK

Mergers & acquisitions (Australasia)

* 41pc of companies plan to pursue acquisitions in the next 12 months, down from 46pc in April.
* Asia Pacific is the top region for investment for both Australasian (72pc) and global (49pc) respondents.
* Australasian interest in Asia Pacific has jumped from 35pc in April to 72pc now.
* The top four investment destinations for Australasian acquisitions are China, India, Malaysia and Singapore.
* 25pc of companies intend to make divestments in the next 12 months, up from 15pc in April.

Growth (Australasia)

* 51pc of firms focused on growth, up from 49pc in April.
* 42pc are focused on maintaining stability, up from 33pc.
* 7pc are focused on survival, down from 18pc and the lowest level since the survey began in 2009.
* 28pc say banking/financial regulation reform poses a risk to growth in the next 12 months.
* 26pc say environmental regulation poses a risk to growth in the next 12 months.
* 18pc say tax regulation poses a risk to growth in the next 12 months.

- Source: Ernst & Young Capital Confidence Barometer