In our recent discussion with Kiwibank Chief Economist Jarrod Kerr, we explored the potential risks facing New Zealand's economy and the challenges businesses are navigating—rising costs, redundancies, and strategies to position themselves for future growth opportunities.
In our recent discussion with Jarrod Kerr, Chief Economist of Kiwibank, we explored how interest rate changes impact businesses. When interest rates drop, even by 0.25%, it signals a shift in economic direction that businesses pay close attention to. While a small cut may not seem significant, it’s the overall trend that matters. Businesses, especially small-to-medium enterprises (SMEs), often operate on loans backed by personal or commercial property. A reduction in interest rates means these businesses can look ahead with more optimism, allowing them to forecast lower costs and improved cash flow in the future.
Jarrod highlighted that many New Zealand businesses, particularly SMEs, have been heavily impacted by rising interest rates and declining property prices over the past few years. Now, with rates falling, these businesses are seeing a glimmer of hope. As the property market begins to recover, there’s potential for renewed growth and expansion across various sectors. This economic shift will allow businesses to plan for the future, hire more staff, and invest in new opportunities.
Commercial property has been an interesting focal point in the conversation. Recently, there’s been a significant rise in inquiries about commercial properties, especially from business owners looking to expand. This is a promising sign for the economy, as business owners foresee increased demand and want to be ready when it arrives.
Jarrod noted that while parts of the commercial property market have faced challenges, there are still plenty of opportunities for astute investors. Businesses across the country are seeking larger spaces to accommodate growth, particularly in areas outside of major cities like Auckland. As the economy improves, businesses will continue to seek out commercial property, making it a valuable sector for future investment.
As the New Zealand economy begins to recover, some sectors are expected to rebound faster than others. According to Jarrod, the recovery will likely be broad-based, but certain industries may lead the way. Agriculture remains a strong performer, with recent positive developments in the dairy industry providing optimism for the future. Similarly, financial services and manufacturing are expected to show steady growth.
On the other hand, sectors like construction may take a bit longer to fully recover. Jarrod also noted that tourism, one of New Zealand’s largest exports, is still running below pre-pandemic levels, largely due to the absence of Chinese tourists. While the sector is operating at about 80% capacity, it will likely take more time for tourism to fully recover.
New Zealand’s tourism industry has faced significant challenges over the past few years. Although domestic tourism has rebounded, the lack of international visitors, particularly from China, has left a noticeable gap. China was previously one of the largest sources of tourists for New Zealand, and until that market recovers, tourism will continue to lag behind other sectors.
However, Jarrod highlighted an important point: New Zealand must look to diversify its tourism market. India, for example, presents a huge growth opportunity. As one of the fastest-growing economies globally, India could become a key market for New Zealand’s tourism industry in the future. By focusing on markets like India, New Zealand can reduce its reliance on Chinese tourism and foster a more resilient industry.
One of the key takeaways from our conversation with Jarrod was the resilience of New Zealand businesses. Many have used the recent economic downturn as an opportunity to streamline operations, reduce costs, and position themselves for future growth. As input costs for materials like wood, metal, and even eggs have decreased, businesses are seeing improvements in their profitability.
Jarrod shared that many business owners are now looking to the future with optimism, having weathered the challenges of the past few years. While there may still be some pain ahead, particularly in terms of redundancies and restructures, the overall outlook is positive. With interest rates falling, businesses are gearing up for growth, and the coming years are expected to be much better than the ones we’ve just experienced.
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