Hospitality industry remains fragile

ROSS GIBLIN

SLIM PICKINGS: Hospitality businesses are expecting a tough winter after many establishments restructured last year.

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A leading spokesman for New Zealand's hospitality industry has questioned the strength of the economic recovery, suggesting the Reserve Bank should hold fire on interest rate rises.

Hospitality Association of New Zealand chief executive Bruce Robertson said trading conditions for its more than 2500 members were still getting worse, with this winter expected to continue to claim victims.

"I don't think the economy is as strong as what they [commentators] are saying it is. Certainly our sector isn't seeing a recovery."

Mr Robertson predicted that the Reserve Bank may opt to keep interest rates on hold this week, despite recent comments from Governor Alan Bollard that the economy could sustain a cautious removal of stimulus measures, which have seen the official cash rate held at 2.5 per cent for a year.

"I think there's some merit in toeing the line for another month or two, to just see where we're at. You don't tend to get strong growth over winter so I'm not sure now is the time to be moving on [interest rates]. I think the economy is still rather fragile."

Most economists are predicting the Reserve Bank will increase the official cash rate by 0.25 per cent tomorrow.

ASB economist Christina Leung said domestic figures pointed to a self-sustaining recovery.

Mr Robertson said the Hospitality Association's members, mainly bars and restaurants, "had not seen any significant improvement" and were expecting a tough winter, with the seasonal fall in spending coming after many establishments restructured last year, in the hope that a stronger summer would sustain them through the quieter winter.

"Summer was average rather than great; businesses that restructured last year are going to struggle come winter, simply because they haven't built up the cash reserves to get them through what is traditionally a pretty tough time, and there's not a lot more they can do," Mr Robertson said. "They've already looked at staff levels and opening hours, the owners are doing a lot more shifts in the business."

As well as a rise in GST and excise tax, the industry was concerned that the emissions trading scheme would hit discretionary spending. The recession had also changed spending habits, he said.

"In traditional downturns over the last 10 or 15 years, New Zealanders have tended to keep spending as the value of their assets continued to rise, so they continued to spend on credit; this time we're seeing a more structural shift with people spending less and being more careful about where they spend their dollars."

Around 150 of the association's members have closed or been put in receivership over the last year, a figure it only began recording over the last two years because most failed establishments were quickly sold, he said.

- © Fairfax NZ News