Navigating Unchartered Waters: An Outlook of New Zealand’s SME Sector in 2024

The New Zealand economy, intricately interwoven with its robust Small and Medium Enterprises (SMEs) sector, is anticipated to encounter a myriad of challenges as it strides into 2024. Emerging from the shackles of the global pandemic, the nation, akin to many others, is steering through unchartered economic terrains. This discourse delves into the predicted economic vista of New Zealand in 2024, with a precise focus on the hurdles that SMEs are poised to confront.

Economic Overview

The economic overview for New Zealand in 2024, as forecasted by ASB, indicates a phase of economic flatlining until early 2024, before a rebound is expected.

Economic Flatlining: The New Zealand economy is projected to remain flat until the early part of 2024. This stagnation is attributed to various factors including high inflation rates and interest rates which are expected to maintain financial pressure on New Zealanders​​.

Inflation: Inflation is anticipated to remain above 5% for the rest of 2023, and it's unlikely to fall below 3% until 2025. This persistent high inflation rate is a concern as it directly impacts the cost of living and the purchasing power of consumers​​.

GDP Contraction: The Gross Domestic Product (GDP) is expected to contract by upwards of 2% by early 2024, which is a significant economic shrinkage, albeit lesser than the contraction witnessed during the 2008/09 financial crisis​​.

Interest Rates: The Reserve Bank of New Zealand (RBNZ) is predicted to hold the Official Cash Rate (OCR) until the second half of 2024 before implementing cuts. This holding period could be indicative of an attempt to manage inflation and stimulate economic growth​​.

Labour Market Challenges: In 2023 geopolitical tensions increased and global financial uncertainties intensified, with labour shortages becoming a significant concern. Retaining and attracting staff had morphed into a major issue, exacerbated by the competition for skills, which placed SMEs at a greater disadvantage. A notable point as we approach the end of 2023 is the upturn in net immigration which is providing a boost to the labour market. This could potentially aid in addressing labour shortages and contribute towards economic recovery​​.

Economic Rebound: Post the phase of economic flatlining, a rebound is expected as the economy picks up momentum in the latter part of 2024. The specifics of this rebound and the sectors that will drive this recovery would be critical to monitor as 2024 unfolds​​.

Supply Chain Disruptions: SMEs are grappling with supply-chain disruptions induced by geopolitical tensions and heightened uncertainty. These disruptions, coupled with financial sector stress, have compounded the challenges for SMEs, impacting both their operational and financial resilience​​.

Regulatory Hurdles: As the global and local regulatory landscapes evolve, SMEs may find themselves entangled in a web of new compliance requirements. These regulatory hurdles could strain the already limited resources of SMEs, potentially impeding their growth trajectory.

Technology Adoption and Digitalisation: The digital divide is more pronounced among SMEs, with a significant portion lacking the necessary skills for a successful digital transition. The lack of access to digital solutions and data networks exacerbates this challenge, hindering SMEs from fully harnessing the benefits of digitalisation​​.

Access to Capital: Accessing capital remains a perennial challenge, more so for smaller enterprises. The cautious approach of financial institutions towards lending to SMEs, driven by reservations about their size and risk profile, continues to be a roadblock to securing necessary funding​​.

Competition: The mounting competition, especially amidst economic recession, is another hurdle. SMEs are required to constantly innovate and adapt to remain competitive and sustain their market positions​​.

Customer Preferences: The evolving customer preferences towards online shopping and green products demand SMEs to realign their business models and offerings. The pace of adapting to these changing consumer behaviours could be a determinant of success for SMEs in 2024.

Conclusion

The year 2024 is foreseen as a period of transition for the New Zealand economy, with the early part of the year being challenging due to economic flatlining, and the latter part promising a rebound. High inflation, interest rates, and a contracting GDP are the significant hurdles, with a silver lining appearing in the form of a revitalised labour market due to increased net immigration. The anticipated economic rebound later in the year offers a glimmer of hope amidst the challenging economic scenario.

However, with a proactive approach, strategic adaptations, and supportive governmental policies, the sector can not only surmount these challenges but also uncover new avenues of growth, fostering a sustainable economic trajectory for New Zealand.