Key findings for New Zealand from the 25th PwC CEO Survey
"As we near the two-year mark since the beginning of the pandemic, we find ourselves still navigating through an uncertain environment. The Omicron outbreak coupled with other challenges such as inflation, rising interest rates and ongoing supply chain disruption have created an environment that will further test business leaders in the year ahead.
We are also facing what I refer to as ‘The Great Migration’. A number of New Zealanders will now be feeling more comfortable to head overseas and embark on their ‘OE’ as the effects of the pandemic start to ease offshore.
These factors mean we are all navigating unfamiliar territory as we head into 2022. However, I believe there is cause for real optimism. Business leaders have proven how resilient they can be in the face of considerable disruption and change. We have shown great flexibility and adaptability and this will set us up well for any further challenges on the horizon.
We also have an opportunity to learn from other countries who are ahead of us in navigating the next wave of the pandemic as we try to minimise the impact on both our businesses and our communities.
Part of this includes finding ways to stay connected. I believe connectivity between our people, customers and broader communities, and with New Zealand and the rest of the world, will be critical for our organisations and economy to thrive.
We look forward to the pandemic-related restrictions lifting at the earliest opportunity so that local businesses are able to operate with less impediments and position themselves for success in the new normal.
Our CEO survey data was collected in October and November 2021 and reflects CEOs’ mindsets at that point. The world has continued to change since that time, however the key findings remain relevant. Working through the impact of climate change must continue to be a top priority so businesses can meet the demands of all their stakeholders. Similarly understanding the economic headwinds we face will be critical for maintaining continuity.
Lastly, I want to thank the CEOs who shared their time and invaluable insights in this year’s survey. I hope you find this report informative and one that provides some insights into how New Zealand businesses can prepare themselves for the future.
CEO and Senior Partner, PwC New Zealand
CEOs are cautiously optimistic about economic growth, both globally and in New Zealand. When we surveyed business leaders in October and November in 2021, a significant proportion (64%) said they expect global economic growth to improve in the year ahead - a large uptick compared to previous surveys (39% in early 2021). These numbers reveal local CEOs are less confident than their global counterparts (77%) about global economic growth although it’s unclear how the Omicron outbreak has affected this outlook.
The same can be said when it comes to New Zealand’s own economic growth. At the time the survey was carried out, many local business leaders (49%) thought this country’s economic growth would improve in the next 12 months. The continued impact of the pandemic as well as the effect of rising inflation have only become more apparent in the intervening period.
The current economy
From a New Zealand perspective we had been able to get back to business last year despite the lockdowns. We saw our central bank and government do a lot to provide support and stimulus to the economy. This instilled a sense of confidence and led to some resiliency to the effects of the pandemic.
While parts of our economy are performing very well and we do still expect some growth, this year we are facing several headwinds. These include labour shortages, the continued travel restrictions and supply chain constraints, to name a few. There’s also the Omicron outbreak and the resulting business continuity issues to work through, largely with reduced stimulus or support relative to previous outbreaks.
We’ve also just seen the annual inflation rate rise to 5.9%. In terms of outlook over the next year, we should see some of the factors causing this to abate with headline inflation peaking over the next couple of quarters. However, the ability for the RBNZ to get this sustainably back down towards 2% in 2022 is unlikely as the mechanics of elevated inflation rolls through into people’s pricing expectations.
A lot of the pressures creating inflation are out of New Zealand’s control (e.g. oil prices or shipping costs). It’s therefore unlikely that higher domestic interest rates will have much of an impact on those factors.
Household spending crunch
Real wage growth remaining negative, the borders staying mostly closed and local interest rates rising will create real issues for households and our collective spending. Ultimately, money going into rising costs is money coming out of the wider economy as consumer demand changes. We’re likely to see wage rate rises but it won’t be enough to compensate for these pressures.
Priorities for business leaders
Business leaders need to be thinking about where interest rates are going and the flow on effect of that from a consumer demand perspective. Most companies carry some form of debt and with interest rates moving higher, leaders need to be prepared for that. A key challenge here is connecting how higher interest rates might impact strategic priorities like funding decarbonisation investments, or other growth-related capex plans.
Labour and skills shortages are likely to persist despite borders reopening as well as ongoing supply chain issues throughout 2022, further challenging the resiliency of New Zealand businesses. There are a number of reasons to remain optimistic about the growth outlook. For example a low NZD coupled with record high prices in some key commodities will mean a boom for New Zealand exporters."
Partner, PwC New Zealand
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The latest survey findings reveal that while New Zealand CEOs are concerned about climate change they are considerably less troubled than their Australian and global counterparts (23% of local CEOs expressed concern compared to 37% in Australia and 33% globally). These numbers may reflect the situation in New Zealand when the survey was carried out (in October and November 2021 parts of the country were in lockdown), with health risks seen as the primary issue for local CEOs (61%).
The numbers also show that New Zealand business leaders are lagging behind in their carbon-neutral and net-zero commitments. Only a small number (18%) say their company has made a carbon-neutral commitment in contrast to 33% in Australia and 26% globally. The results are similar when it comes to net-zero commitments (16% of New Zealand CEOs compared to 24% Australia and 22% globally). Although more say they are working towards carbon-neutral (32%) and net-zero (29%) there is clearly more still to be done.
The trend has been driven, in part, by governments taking steps to drive the private sector - something we haven’t seen as much locally. However, this could change in May when the emissions budget is set by the New Zealand Government.
Businesses can create opportunities through making net-zero and carbon-neutral commitments. They will have to make fundamental changes to their strategy as well as business and operating models. In this, lies the possibility to capture the benefit of new technologies, introduce efficiencies, drive down costs or transform supply chains, for example.
New Zealand businesses also need to remain competitive internationally. With offshore competitors already ahead, local businesses must act now to keep up and not be left behind. There is an opportunity to learn from the actions of those international businesses who are already greening their supply chains and innovating to reduce their impact on the planet.
Developments like the EU taxonomy for sustainable activities could have a direct impact on a wide range of New Zealand exports and trade. The introduction of carbon border adjustment mechanisms and other regulatory levers could disadvantage New Zealand companies if they don’t start making changes.
Change is now
There is often a misplaced perception that climate change is something that’s happening in the future but it is happening now. It can’t be left to someone else to solve. The impact for business can be seen in the way that global financial markets are starting to respond. Access to capital is changing as well as the ways investors view climate risk. An example of this is the rise in due diligence related to ESG criteria in M&A transactions.
This year, a major theme we’re seeing develop is the financing of addressing climate change. At COP26 we saw a lot of discussion about where the funding is going to come from and I’d expect that to continue. Financing to enable and accelerate the transition to the zero carbon economy whether that’s from governments or the private sector is critical.”
Sustainability and Climate Change Leader, PwC New Zealand
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