What does the New Zealand recession mean for Australia’s small business sector?

Australia’s small businesses can expect tough times ahead even if local economic conditions do not mirror New Zealand’s technical recession, according to NAB group chief economist Alan Oster.

New Zealand entered a technical recession in the March quarter, recording gross domestic product (GDP) growth of -0.1%, after recording -0.7% growth in the December quarter of 2022.

An official interest rate of 5.5%, a 14-year-high, has dampened consumer confidence across the ditch, with household spending sentiments now well below the levels recorded in the 2008 global financial crisis.

At home, Australia is still processing the rapid transition of a 0.1% cash rate to today’s 4.1%, with further hikes a live possibility as the Reserve Bank of Australia attempts to curb inflation.

ANZ-Roy Morgan research shows local consumer confidence is at three-year-lows, as elevated borrowing costs start to deter discretionary household spending.

Australia can expect rough conditions in the months to come, says Oster.

NAB predicts economic growth of just 0.1% in the September quarter, and flat growth in the three months to December.

“We don’t expect to see much growth at all in the second half of this year, maybe the first quarter of next year,” Oster told SmartCompany.

The circumstances are likely to remain tough in 2023 for small businesses focused on discretionary spending, and traders in the accommodation and hospitality sector, he adds.

“I’m quite optimistic about the medium term, but in the short term, particularly if you’re a small business in anything that’s quite discretionary, I think there’s a problem,” Oster continues.

“The bottom line is that the economy is going to be a lot softer than it currently is, and so it’s a tough time.”

However, enough separates the Australian and Kiwi economies to keep the nation from mirroring New Zealand’s recessionary spiral.

A heavy focus on mining exports still differentiates the Australian economy from recession-struck New Zealand, for example.

New Zealand’s overall economic heft is comparable to that of Queensland, says Oster, which means its two consecutive quarters of GDP contraction are unlikely to have a direct effect on Australian business.

Anneke Thompson, chief economist for CreditorWatch, agrees that New Zealand’s particularly aggressive cash rate hikes and Australia’s mining revenue safety net differentiate the economies.

Australia’s migration rate is also preventing the economy from drooping further, she suggests.

Nevertheless, as Australia’s GDP growth stumbles, local businesses should still prepare for a harsh winter.

“If there’s anything for Australian businesses to learn, it is that unfortunately, things are going to get worse before they get better,” Thompson told SmartCompany.