Forecasts based on the Equipment Demand Index suggest capital expenditure by New Zealand businesses will reach NZD$60.7 billion this year, a record for the country and a 7.0 per cent increase on the previous year.
Overall, the Index results show New Zealand’s upbeat economy is having a positive effect on demand for assets. Moreover, more businesses are starting to lease, rather than buy equipment, helping to achieve a more efficient capital structure.
According to this quarter’s results for the Index, 87.2 per cent of New Zealand businesses intend to increase their asset base this quarter.
There are two key factors which businesses cited as their main reasons for this, the first was, ‘confidence in the strength of the local economy,’ at 51.2 per cent. The second was, ‘desire to expand their business,’ with 36.0 per cent stating they are in expansion mode.
The desire for some to expand their business is reflective of business’ confidence in the New Zealand economy, and with economic growth has steadily increased year-on-year since the 2008 recession, they have good reason to be confident.
Hospitality, property and agriculture were the most bullish of all the sectors surveyed, with hospitality taking the lead at 60.0 per cent. As the government look to take steps in changing their immigration policies, will confidence from hospitality firms begin to wane if visa holders, who often make up a large portion of hospitality staff, are no longer able to work in the industry?
The least confident industries surveyed were manufacturing, construction and wholesale. This, unfortunately, could end up being a trend which continues into 2018 following Cadbury’s announcement that they will be closing their Dunedin factory.
A total of 48.6 per cent of upper corporates intend to acquire assets this quarter, followed by 47.4 per cent of SMEs. At the other end of the scale, and for the second quarter running, lower corporates came last at 44.3 per cent.