Buckle up for 2022.  In 2020 we navigated COVID-19 with success.  2021 was a mixture of basking in post recovery sunlight and then the reality as COVID-19 reappeared.

The coming year looks set to be fraught with uncertainty, as we learn to deal with the enduring impact of COVID-19, but many other issues too.  Change looks the new normal.  It is not an environment where the same old ways of doing things apply.

The past few months have been interesting, a rather insipid description of moving out of lockdown, rising interest rates, strong inflationary pressure, difficulty finding workers, rising material shortages, a strong economy in aggregate, though one with some frailties and pressure points, with many sectors still suffering.

Heading into Christmas, one thing is obvious.  People need a break and time out.

Then comes the inevitable.  Holidays end and back to business we go.  That involves charting the course ahead, which involves looking in the rear-view mirror for lessons, and trying to imagine the road ahead.

Here are some key themes to think about.

Let us celebrate some success.  We have low unemployment, record numbers of building consents (both residential and non-residential), high commodity prices, an economy operating above pre-COVID-19 levels, and low non-performing loans across the banking sector which means limited signs of financial stress.  Government spending and low interest rates continue to support the economy. 

It is no one way traffic.  The economy has a K look about it.  Many are on the top part of the K – booming, and others the bottom part, languishing.  Tourism and hospitality continue to be battered.  We have a booming housing market and record number of people on the social housing waiting list.  Unemployment is down but we still have one in nine people on a benefit.   

Where are the workers?  Unemployment sits at 3.4 percent.  Job growth has been strong.  But closed borders have effectively eliminated migration as a source of labour supply and the mobile workforce (backpackers) have gone.  Borders will reopen but employers will face long-term labour supply challenges.  The population is ageing, constraining labour supply. More investment in technology will be needed.

Cracks have been appearing in China’s growth (property) story over the past three months.  China is a key trading nation for New Zealand and a large economy.   

Some basics.  New Zealand is often coined one big farm and a nice place to visit.  We have the former alone now.  The production of food is at the epicentre of what we produce and the economic base.  Food accounts for more than $30 billion of exports.  Addressing infrastructure deficiencies needs to be a key priority for New Zealand to prosper.  We do not have an infrastructure plan, and this is a glaring hole.  Growth in forestry and carbon farming will be a major part of New Zealand’s environmental response.

Supply is the key line, not demand.  The building blocks of the economy and any business is the ability to meet demand.  This is where businesses are being knocked around whether that be via worker availability, materials, or the productivity hit of operating in a COVID-19 environment. Supply issues pressure working capital.  Watch that in early 2022. 

Stakeholder capitalism is “in”, and shareholder capitalism is “out”.   The former is the long-game winning over the short term pursuit of profit.  This means looking after staff, being community connected and implementing sustainable business practices. 

COVID-19 will continue to be disruptive.  We have to deal with the enduring impact.  Behaviours will change.  But it is not the only disruptor.  Government policy, and uncertainty around it lingers.  Staff, finding them, and getting them consistently turning up.  Dealing with mother nature/weather.  Environmental responsibility and expectations across society have shifted.  Technology.  Pick your disruptor.  They are all here.

Not taking risk is no longer the risk-free strategy in a disruptive and rapidly changing world. 

The inflationary thief is here.  Inflation erodes purchasing power and potentially undermines firms’ margins.  Inflation is on track to head towards 6 percent, the sort of increase we have not seen since the 1980s.

Some inflationary pressure reflects COVID-19 and disrupted supply chains.  Those issues will pass with time but there is a deeper inflationary under-current reflecting an economy that is too hot to trot. 

The Reserve Bank is lifting interest rates to cool demand and bring inflation back into line.  That may prove difficult with key drivers of inflation looking stickier.  Three percent inflation might be the new normal as opposed to two percent. 

Firms need to think small to stand tall.  Economists talk about macroeconomics.  The big picture stuff.  But the success or otherwise of any business ultimately comes down to microeconomics.  That is what businesses do individually.  All those small decisions count.  Businesses that adapted better to a digital world in 2020 were better placed in 2021.   

The bottom line is simple.  New Zealand has proved to be remarkably resilient, but the year ahead will involve some real mahi and different thinking.

For more information about Apricity Finance or to find out how an invoice finance facility could help your business adapt to changing conditions by giving you access to the funds from your invoices as soon as they are issued visit apricityfinance.com or call 0800 277 424