The 2022 survey is our third since August 2020, and is aimed at understanding business confidence in the Waikato region. This year’s survey, conducted over the period 1st February - 6th March, paints a challenging picture for the Waikato business environment, with a significant drop in business confidence, major skills shortages, and clear pressure on input costs and pricing.
The overarching theme emerging from this year’s survey is that respondents are not surprisingly in survival mode and focused on short term issues – with cost pressures front of mind for the majority.
The focus on cost and inflation is a dominant theme in surveys across the board over the last month, with some firms swallowing extra costs with a material impact on margins, or increasingly, most looking at material price increases – with the resulting impact on national inflation, now picked to top 7%.
But Waikato businesses are more confident in the performance of their own businesses than they are in the regional or national economy – with a theme emerging “things are less bad in my neck of the woods”. This is a consistent theme across all the confidence surveys Te Waka has done – where people think things are going ok for their own business; not quite so well for the region/industry; and that the New Zealand economy as a whole is in a much worse state. That is a reasonable response in the current environment that reflects increasing uncertainty as businesses move from something they know well (their own business) to something they don’t as much (the economy).
Encouragingly, Waikato businesses are still intending to hire despite the negative sentiment. Ultimately, when the rubber hits the road, confidence to hire is a sign of an underlying belief that ‘we’ll get through this’ which is encouraging.
However, the short-term focus comes at the cost of looking to the future. A luxury perhaps, but the current environment demands innovation and brave thinking, and the survey suggests innovation is far from front of mind right now. This aligns to lessons from previous economic crisis periods, where firms that focused on fixing the old way of doing things underperformed those adopting a more transformative approach. In tough times, it’s easier to put one foot in front of the other than it is to revolutionise, but experience suggests that disruption accelerates in such times.
We were also surprised to see - despite growing understanding regarding the impact of climate change - that the majority have no strategy in this area and less than half expect climate change to impact them. Perhaps this is due to respondents focusing on the immediate future rather than further afield? Either way, a passive stance from businesses could present a significant future risk for the regional economy as the impact of climate change becomes more apparent and new policies are introduced in response.
Bottom line, it’s an extremely challenging time for businesses. With rapidly rising inflation, interest rates continuing to scale in response and with ongoing pressures of supply chain and people, many feel the worst is yet to come - with major impacts on cashflow, employment and asset prices. But our region remains better placed than many, with strong industry growth and natural demographics better than many.
Fortune will favour the brave, and businesses that can juggle the short-term response alongside adopting a future focused approach will in our view be better placed to prosper in a period of transformation.