Confidence among local SMEs is plummeting as revenue has taken a hard hit in the wake of the latest COVID-19 community outbreak and as ongoing challenges of running a business during the pandemic take hold.
The latest MYOB SME Economic Snapshot – a survey of more than 500 local SME business owners and decision-makers – found that more than half (55%) of New Zealand’s SMEs expect the economy to decline in the next 12 months, with almost a quarter (24%) expecting that decline will be significant. In comparison, polling for MYOB’s July Economic Snapshot revealed more than a third (38%) of SMEs at that time expected the economy would decline.
In line with this trend, just 24% of SMEs believed the economy would improve over the next 12 months in the latest survey, compared with 33% expecting an improving trend in the July Snapshot.
This falling confidence reflects the impact on business earnings seen from the latest round of COVID-19 restrictions, with almost half (48%) of the SMEs surveyed reporting their revenue is now down on a year ago – compared to just over a third (34%) in July. Expectedly, this trend is particularly noticeable in Auckland where businesses have borne the brunt of restrictions, with 57% of businesses in the region seeing their annual revenue fall. Nationwide, retail businesses have also been hit hard, with 60% reporting a decline in revenue.
Looking forward to 2022, the picture somewhat improves, but negativity is still weighing on local SME owners and operators. Just under a third (31%) of SMEs believe their revenue will be down in 12 months’ time, while almost a quarter (24%) are forecasting increased revenue and 36% expect their revenue will be about the same.
MYOB Head of Customer Service, Jo Tozer, said the latest SME Economic Snapshot makes for sobering reading, particularly after many businesses had been enjoying a steady recovery following the initial impacts of the pandemic last year.
“What we are seeing here is a combination of factors: both the immediate results of the latest community outbreak of COVID-19 and the restrictions that have been put in place, as well as the challenging nature of doing business now the broader impacts of the pandemic – on supply chains, production costs and skills shortages – have become clear,” she explained.
“While in early 2020 we saw a short, sharp shock in terms of business performance, prior to the pandemic, we hadn’t seen these levels of revenue declines in over 13 years of our SME surveys. In fact, SMEs reported a more significant fall in revenue for the 12 months to October 2021 than they did in the aftermath of the GFC.”
Broad COVID-19 impacts beginning to bite
Although the COVID-19 pandemic is continuing to have by far the most significant effect on the mood of SMEs, with 68% saying it is having the biggest impact on their confidence – up from 49% in July, a broader range of factors emerging in the economy are also making the picture more complex and uncertain for local businesses.
Local factors having the biggest impact on level of confidence (Respondents could select more than one option):
- 68% - COVID-19 pandemic
- 31% - COVID-19 vaccine roll-out
- 30% - closed or restricted borders
- 18% - shortage of skilled employees
- 17% - median house prices
- 16% - consumer confidence.
“While many of the businesses we have spoken to over the last year have been pleasantly surprised at the level of demand they have seen in the local market, it has now become much harder to do business,” continued Tozer.
“There’s so much uncertainty – from what final percentage of vaccination levels will be needed to avoid various future restrictions, to when the borders may re-open – that SME operators are really struggling to plan ahead.
“At the same time, finding the right staff to meet their needs, getting goods into New Zealand or out to export markets, and the rapidly rising costs of components in everything from construction to electronics, are all putting real pressure on both their operations and their margins.”
Inflation on the rise as businesses face increasing costs
Those rising costs, highlighted by the 2.2% surge in inflation for the September quarter, are set to continue and now, more local SMEs signal they intend to pass on price increases to their customers.
In the new SME Economic Snapshot, 44% of respondents said they planned to raise their prices in the next six months, including 56% of those in the construction sector, and 54% in manufacturing. Almost half (49%) of Auckland businesses surveyed also said they intend to put their prices up before April 2022.
A range of factors are contributing to this decision, including increasing supply costs (59%), increasing operational costs (55%), rising costs of production (52%), the increases in the minimum wage (35%) and the cost of utilities like power and internet (34%). A third (33%) of SMEs surveyed also said their decision to raise prices was driven by the need to recoup losses from COVID-19 disruptions.
“While we bounced back strongly from the initial lockdowns, businesses are now really starting to hurt – and not just those on the front-lines of the pandemic, such as hospitality and tourism.”
“Businesses will be extremely interested to see what the Government has to offer on Friday, both in terms of additional support and the promised roadmap out of the current restrictions. At this point, a clear direction is absolutely vital,” Tozer concludes.
“One thing is very certain – many businesses will not be able to cope with a longer period of major restrictions or the uncertainty of moving up and down alert levels. While the health of New Zealand is vital to the health of the economy, with other options available, now is the time for a new strategy for recovery, before the losses SMEs are currently experiencing become any greater.”