The sky is not falling

Confidence where it's due - and the numbers say we're recovering

Thursday, August 19 2010 || Comment || BY Julian Smith

This week I’ve found myself swimming against the tide of popular opinion – or at least that created by economic commentators and opinion polls.

Publishing the results of this quarter’s MYOB Business Monitor, we stated that New Zealand is not really at risk of a double dip recession, at least in the short term. We were able to make the assessment both because of the type of surveying we do and the quality of the data. The MYOB Monitor is a performance survey – not a confidence one. We ask how businesses are actually doing and how much work they have on, as opposed to asking how they feel about the economy. And we ask more than 1000 business owners from around the country, with weighting based on Stats NZ modelling.

The results are good news. For the first time since the global financial crisis, more businesses are reporting revenue increases than decreases. And in the next quarter, almost a third of Kiwi businesses have got more work on than usual, and only 20% have less.

So the underlying data is solid – and the trends – even though some of them are coming up from a low base, are all pointing upwards.

But for many business people I’ve spoken to, the recovery is something that is happening to someone else, and – as many winter polls of business confidence have shown – there is still a good degree of nervousness in the market.

Our own data points to some of the reasons behind this. The smallest business owners – New Zealand’s sole traders and very small employers – have been hit hardest by the recession, and are taking more time to bounce back – especially after the recession has exhausted their financial buffers and sources of investment. These are by far the largest group of Kiwi business owners, and their opinions rightly carry weight.

And of course, the news from overseas is not all good, with a slight slowing of growth in China (though moving to the number two position in the world economy is no mean feat) and some confronting unemployment figures in the US.

But although this recovery has been far longer and slower than anyone would have liked - and certainly far more so than was predicted at the end of last year, we are not going backwards.

Unless we make it happen. And therein lies the danger of relying too much on confidence and external indicators to predict the fortunes of the New Zealand economy. There is a very real risk that we talk ourselves back into recession, undermining consumer confidence, scaring off investors and dragging down activity.

Now don’t get me wrong, a careful, considered approach is a good thing in business. But we should base our decisions on real data – not opinion. The numbers say we are not doing too badly, and that slowly, things will get better.

Julian Smith (@JulianTSmith) is the general manager for MYOB in New Zealand. A frequent keynote speaker and business commentator, he blogs on key issues and trends, providing advice on how to make business life easier.