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Covid sinks small firms’ confidence

Small firms’ confidence plunged in the June quarter with Covid-19 wreaking havoc on sentiment, although early indicators suggest September quarter confidence started on a more positive footing, according to the latest ANZ Business Micro Scope.

 

A net 48% of small businesses surveyed were pessimistic about general business conditions in the year ahead – a far cry from the average over the last two decades (-3%).

 

  • Small firms’ confidence plunges in June quarter as Covid-19 decimates activity.

 

  • The composite growth measure also sinks, although early indicators for July offer hope.

 

  • Regulatory requirements remain the biggest concern, although low turnover post-Covid is a growing worry.

 

The composite growth measure for small businesses – which takes into account firms’ views on growth indicators including activity, hiring, profit and lagged investment intentions, and is a proxy for GDP growth – sank to its lowest-ever level since measuring this data began in 1999, surpassing that seen during the Global Financial Crisis.

 

The halt in business activity brought on by Covid-19 pushing the composite measure 14% points lower to -24 points.

 

“While unprecedented monetary and fiscal stimulus have been put in place to cushion the blow of Covid-19, the impact on small business confidence and growth outlook has been devastating,” said Ben Kelleher, Managing Director Retail and Business Banking at ANZ.

 

“With activity in sectors like international tourism and education stopping almost entirely, policy can only do so much. Encouragingly, monthly readings from April to July suggest confidence is slowly returning for small firms, but all indicators remain in contractionary territory.”

 

Small firms’ expectations of their own activity fell 29% points in the quarter, with a net 38% of businesses looking to slower activity over the year ahead. Of those, retail firms – already grappling with growing online competition - were the least optimistic.

 

 

“While unprecedented monetary and fiscal stimulus have been put in place to cushion the blow of Covid-19, the impact on small business confidence and growth outlook has been devastating."

 

Ben Kelleher, Managing Director Retail and Business Banking, ANZ New Zealand.

 

 

The most optimistic was the agriculture sector, although a net 32% of firms expecting a fall in activity is still low by historical standards.

 

Hiring intentions also slumped, with a net 36% of firms expecting to shed jobs over the next year – again a historic low by a considerable margin. However, the early read for July shows a sharp rebound has begun.

 

Investment intentions fell to their lowest level ever with a net 30% of small firms expecting to reduce investment over the next year, while 58% of firms expect profits to deteriorate.

 

“While relatively robust export prices will be welcomed, the elevated NZD, recent drought conditions, the very weak global economic backdrop, compliance and difficulty passing on costs are all adding to the uncertainty for small firms. Although, encouragingly, July monthly data bounced back strongly, there’s still a long way to go,” Mr Kelleher said.

 

Regulatory requirements remain the most important problem according to small firms, but low turnover has gained a lot more attention. In line with previous surveys, competition from other businesses and finding skilled workers are also major problems.

 

Highlights from the June 2020 ANZ Business Micro Scope survey of small firms:

 

[Net percentages reflect the balance of sentiment, i.e. percent positive minus percent negative responses]

 

    A net 48% of small businesses surveyed were pessimistic about general business conditions in the year ahead.

 

    The composite plunged to -24, the lowest since measuring this data began in 1999.

 

    Small firms’ expectations of their own activity fell 29% points in the quarter, with a net 38% of businesses looking to slower activity over the year ahead.

 

    Hiring intentions also slumped, with a net 36% of firms expecting to shed jobs over the next year.

 

    Early July figures suggest some improvement, but it’s early days.

 

    Wellington is the most optimistic province at -15.8 points on the composite measure, while the North Island provinces are gloomiest.

 

    The construction sector is the most upbeat of a downbeat bunch with -14.7% points, while agriculture is most pessimistic on -32.3.

 

For more information contact ANZ Economist Miles Workman on 021 661 792 or miles.workman@anz.com

 

For media enquiries contact Stefan Herrick on 021 748492 or stefan.herrick@anz.com

 

ANZ BUSINESS MICRO SCOPE: TECHNICAL NOTES

The ANZ Business Micro Scope is a quarterly indicator which focuses on the prospects of small businesses across New Zealand. The survey was launched in March 2012 to address a lack of ongoing research specific to the small business sector. The Micro Scope covers a range of key business intentions and views on prospects for both respondents’ own businesses and the wider economy. The figures in this release cover the quarter to 30 June 2020. The survey took responses from around 200 small firms, comprising micro (up to five staff) and intermediate businesses (six to 20 staff). The sample is taken from the ANZ Business Outlook survey, which covers micro up to large businesses. Comparisons prior to March 2012 are calculated by extracting corresponding data on small businesses from that survey, which goes back to December 1999. The ANZ Business Micro Scope was not produced for the March quarter due to resource constraints during Alert Level 4.

 

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