With the start of the next financial year fast approaching, it’s time to get all your ducks in a row to ensure a prosperous 2025/26.

This financial year appears poised to start on a far better note than the last one.

Michael Gordon, senior economist at Westpac New Zealand, says the economy is turning the corner after a rough 2024 and there are promising signs of recovery.

“As is often the case at turning points, conditions are mixed,” he says.

“Positively, we see household spending growing again, strengthening tourism and stabilising house prices. Other sectors remain weak – for example, manufacturing and construction.”

But Gordon cautions: “A trade war has erupted as the new US president delivers his well-signalled policy agenda. There’s much uncertainty on how this will play out, but it won’t be good for New Zealand.

“Looking ahead, our baseline view is for gradual recovery assuming trade uncertainties don’t disturb either economic activity or our terms of trade too much. There are likely downside risks to this sanguine view. But a lower New Zealand dollar will likely help shield us from the fallout.”

Gordon expects inflation to remain between 2-3% because of higher soft commodity prices and the weak exchange rate. Further interest rate cuts are anticipated, but Gordon says the Reserve Bank of New Zealand should move more cautiously after February.

Improving balance sheets

Similarly, the latest Quarterly Economic Outlook from ANZ suggests that the economy is starting to get back on its feet.

It reports that household and business balance sheets are in much better shape than past per capita economic downturns. It predicts that households will benefit from the recent shortening in how long the average home loan is fixed for and that the low New Zealand dollar will continue to support exporters.

“Global prices for New Zealand’s key exports are generally, but not uniformly, rosy,” notes ANZ.

The bank adds that business confidence has recovered meaningfully although there’s some disconnect between what firms are expecting 12 months from now (much better times to come) and what they are experiencing at present (subdued but improving demand).

Light at the end of the business tunnel

MYOB  found that the prospects of New Zealand’s small and medium-sized enterprises were also looking up. Indeed, 30% said they had more work or sales lined up for the first quarter of 2025 than they would usually have expected and 41% said they had the same level of work or sales in the pipeline as normal.

In comparison, 43% of businesses reported lower sales than expected for the final quarter of 2024 while over a third (37%) said their sales were as expected.

MYOB chief customer officer Dean Chadwick says the positivity emerging in businesses’ sales outlook is an encouraging start to 2025, despite lingering uncertainties around inflation and the international landscape.

“Inflation and the cost of living continue to influence business confidence coming into 2025, as well as factors like transport costs, the country’s economic performance and interest rates,” says Chadwick.

“Many will also be keeping a close eye on international markets with more change likely over the next 12 months,” he says.

“However, reinvigorated demand for their goods and services as consumer confidence increases will help to ease some of the pressures many business owners have been feeling over the past few years. While it’s certainly still early days, it’s heartening to see local businesses are beginning the year with more momentum than many will have seen in some time.”

Investing in customers and technology

So how are businesses responding to the recovering economic environment?

MYOB’s survey finds that nearly a quarter (24%) plan to boost spending on improving their business operations this year. That said, half intend to keep their investment the same as previous years.

The research shows that a third plan to put most of this spending towards marketing and sales while 28% will allocate a large part of their budgets to technology and digital transformation.

Other areas likely to see more investment from businesses this year are equipment and machinery upgrades (25%), team training and development (24%) and improving the customer experience (19%).

Chadwick believes that businesses will focus on the customer as they strive to stimulate growth this year. He says it’s all about driving foot traffic and attracting new customers by homing in on marketing and sales activities.

Then, it’s about doing what businesses can with their teams to keep these customers returning and improving the customer experience. Businesses’ continued appetite for better technology will help them to maximise these potential gains, says Chadwick.

Innovation the way to go

MYOB’s poll also shows that businesses recognise innovation as a key way to achieve growth. Half of those surveyed said that innovation is vital to their businesses and more than a quarter (27%) view innovation as a big priority.

The median estimated spend on innovation for 2025 sits at just over $33,000. However, it rises to $74,000 for manufacturers and $63,330 for the construction and trades industries.

However, Chadwick observes: “In determining how much they’ll spend on innovation, we know local business operators are still carefully balancing lower demand volumes and higher costs, so it’s a delicate trade-off between managing those challenges and exploring innovation as a way to help boost their business performance.

“If business owners bed down their investment plans now, they will be better positioned to start realising their ambitions – whether that is business expansion, revenue growth or upskilling their teams – when they enter the new financial year,” he says.

Financial facilities to help business growth

If you’re planning to grow your business in the current economic climate, there are many challenges that present potential obstacles to success. With the end of financial year approaching, it’s a good time to explore your options – and there are several funding options designed to help businesses remain stable and grow, even in challenging economic conditions.

Grow your business with ScotPac

ScotPac has been helping New Zealand businesses survive and thrive with fast and flexible finance solutions for decades. Our commercial funding options include:

All our facilities are designed with the needs of New Zealand business owners top of mind. Plus, they’re all completely customisable, so you can benefit from a tailored funding solution that suits your business’s needs.

To find out more about our Invoice Finance, Trade Finance or Business Loan solutions or to discuss your goals for your business for the upcoming financial year, get in touch with ScotPac’s lending specialists today.