Invest or die in a downturn

JAMES WEIR
Last updated 11:06 04/12/2012

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New Zealand's economic downturn has lasted much longer than businesses expected, but firms that invested were the most likely to grow, according to a new study.

In contrast, those businesses that just cut costs and waited out the downturn have struggled, the study shows.

Almost three years ago, most businesses expected the economy to be fully recovered from the downturn by 2011. This year almost half say recovery could still be another 18 months away.

In April of 2010, 78 per cent of businesses said they expected the economy to be fully recovered by the end of 2011, according to an NZIER analysis of results from the MYOB Business Monitor for the past four
years.

The recovery, however, has disappointed, with 48 per cent of businesses saying they believed that economic recovery would still be more than 18 months away in June of 2012.

In the unusually slow recovery from recession, firms putting money into the business and upgrading their systems and processes have seen their performance improve in the past four years.

"However, businesses which tried to wait out the downturn by cutting costs or deferring investments have struggled," the report says.

Businesses focused on business development have seen revenue growth over the previous 12 months improve from minus 9 per cent in early 2010 to up 17 per cent in June 2012.

In contrast, other businesses report sales have slowed from minus 6 per cent in early 2010 to only up 8 per cent in June 2012.

NZIER Principal Economist Shamubeel Eaqub says the results confirm this recession is different to recent downturns and that a different business approach has been needed.

"All the economic data shows this has not been a typical downturn. The recession lasted nearly twice as long as other recessions in the last 50 years, and the recovery since has been quite shallow.

"This has meant that businesses who have taken the approach of tightening their belts during tough times and trying to wait out the downturn have actually not performed as well as businesses who have
focused on their core strengths and invested their way through the recession."

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- BusinessDay.co.nz

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