Is 2023 a Good Time to Buy a Business in New Zealand?

Having been in business for three decades, buying, growing, and selling various ventures, I’ve seen the ebb and flow of economies. The question on many minds today is whether 2023 is the right time to invest in a business in New Zealand. Let’s delve into the current economic landscape to provide some clarity.

1. The Current Economic Climate

The New Zealand economy in 2023 is experiencing a cooling trend, more rapid than many experts had anticipated. The OECD’s projected GDP growth for New Zealand this year stands at 1%, lagging behind countries like Australia, Canada, the UK, and the US. With the economy contracting over the past two quarters, there are concerns about a prolonged recession and entrenched inflationary pressures. The unexpected contraction of the GDP in March 2023, coupled with negative sentiments surrounding interest rates, suggests deeper economic challenges than initially expected¹.

2. Government Policies and Their Impact

Several government interventions, such as changes in banking, increased taxation on specific sectors, and growth in non-frontline staffing, could further deepen inflation and extend the recession into 2024¹. Historical data indicates a correlation between inflationary pressures and legislative changes related to petrol and vehicle taxes, farm production, and business operating costs. These policies, some of which were introduced in 2022, are now beginning to impact the broader economy¹.

3. The New Zealand Election

2023 is election year for New Zealand. A broad dissatisfaction with the direction currently pursued by the incumbent Labour government suggests a change of government is likely in October. Regardless of the outcome, the uncertainty of who will form the government is causing a pause in consumption and investment. This is showing up in the macroeconomics.

4. Historical Trends

Drawing parallels with the past, in 2004, New Zealand faced higher than expected inflation, leading to aggressive monetary and government interventions. By 2007, this resulted in a significant drop in housing development, a decline in the labor market, and a decrease in overall economic growth¹. The current trends suggest a similar inflationary cycle is underway in 2023.

5. The Broader Picture

Over the past 40 years, New Zealand has transitioned from an agrarian economy to a more industrialized, free-market economy. This transformation has led to real income growth but has also posed challenges, such as the balance of payments deficit and inflationary pressures². The country’s focus on expanding its network of free trade agreements, like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), showcases its commitment to global competitiveness².

So, Is 2023 a Good Time to Buy a Business?

While the current economic indicators might seem challenging, it’s essential to remember that every economic downturn also presents opportunities. Distressed assets can be acquired at lower valuations, and if you have the expertise and patience to navigate through the downturn, there could be significant upside potential.

However, it’s crucial to conduct thorough due diligence, understand the specific industry dynamics, and perhaps most importantly, have a clear strategy to weather the storm. If you’re considering buying a business, it might be wise to focus on sectors that are recession-resistant or those that can capitalize on the changing economic landscape.

While 2023 presents certain challenges for the New Zealand economy, for the discerning investor, it could also offer unique opportunities. As with any investment decision, it’s essential to be well-informed, strategic, and prepared for the long haul.