Business confidence in Canterbury showing resilience

Recent news that the New Zealand economy was in recession saw Google searches for the R-word surging in late March. A recession occurs when economic output shrinks for two quarters in a row.

We can’t tell whether Canterbury’s economy also contracted over the same period, because the same data isn’t produced at the regional level. However, yearly estimates from Infometrics show that local economic growth was above the national average throughout 2023.

In light of this, it’s useful to look at how households and businesses in Canterbury were feeling about the economic outlook in the first few months of 2024.

Consumer confidence and business sentiment both impact economic activity and are influenced by it. Strong confidence tends to lift spending and investment, boosting economic growth. Conversely, when economic activity is lacklustre and conditions tougher, household and business sentiment is more uneasy.

So how were Cantabrians feeling in the lead up to the recession announcement in late March?

Business confidence in Canterbury remained generally positive in the March quarter, according to Business Canterbury’s latest survey. However, inflation and softening consumer demand concern local businesses.

Despite this, the share of Canterbury firms that expect the regional economy to be stronger in the next year is sitting at 47%, comfortably above the long-term average of 30%.

Business owners in tourism, hospitality, and retail are the most optimistic about future economic conditions, which is no surprise given the impressive performance of international tourism in Canterbury recently. But confidence is still dampened by the fact that inflation remains the number one challenge for local business - 71% of Canterbury businesses expect costs to increase further.

Although down from the previous quarter, optimism about future financial prospects was also still sitting above average levels.

Similar sentiment was echoed in MYOB’s latest Business Monitor. This found Canterbury SMEs were more likely to highly rate their current financial position than those operating elsewhere in New Zealand (36% vs 27%).

Over a third of Canterbury small and medium sized businesses (SMEs) anticipate revenue growth over the next year — the highest proportion in the country.

Job market

While businesses in Canterbury are facing high costs, they have found some relief when it comes to labour market constraints. Compared to the rest of the country, more businesses in Canterbury are satisfied with their current levels of employment.

About 81% of Canterbury firms believe that they have the right number of staff, as opposed to the national average of 70%.

Additionally, finding workers has become easier in recent months, which will reduce wage inflation.

The changes happening in the job market have not brought the same sense of reassurance to consumers. Recent job cuts in the public sector have led to increased uneasiness.

National-level data from Westpac shows that people’s perceptions about current job opportunities have been declining for the past six quarters. This aligns with a rise in competition for jobs over the past year. According to data from Seek, the number of job applications per job advertisement has increased by over 25% both locally and nationally during the six months leading up to February 2024.

Consumer confidence is still sitting at net pessimistic levels, despite having climbed since last year.

However, it was still the secondhighest reading in the last two years.

Consumer confidence reflects how households feel about their personal financial situation and the state of the economy more generally.

Consumer sentiment has been slowly improving as inflation has fallen from 2022 levels, and mortgage rate hikes have slowed.

Householders positive

Westpac also monitors how households feel about the economic outlook for their region.

Canterbury tends to be one of the most optimistic regions when it comes to this measure. Three of 11 regions — Southland, Auckland, and Canterbury — recorded a net optimistic score for the March quarter (ie a score above zero, which indicates there are more positive households than negative).

In further evidence of Canterbury resilience, the region has been in net positive status since the end of 2023, squeaking in with a score of +1 during both the December and March quarters.

Sophie Jones is ChristchurchNZ’s economic analyst. This monthly economic snapshot is provided by ChristchurchNZ