Economic outlook – spring will come …
by Simon Lord
last updated 16/05/2024
15 May 2024 – The latest Economic Overview from Westpac says spring will come for New Zealand, although we need to do the hard yards through winter first. How will this affect prospects for franchisors and franchisees?

In the introduction to the quarterly Economic Overview published today, Kelly Eckhold, Westpac’s Chief Economist, says that New Zealand is still doing the hard yards. ‘Households and businesses will feel uncomfortable this year. Growth is not at disastrous levels but is weak, and the labour market will do a greater share of the required adjustment.
‘The Government will also begin fiscal consolidation which will aid economic adjustment. It’s going to be a long grind to fiscal balance … Past interest rate increases are now having their peak effect, which means we all can look forward to better inflation outcomes this year and next.’
Here are some key points from the Overview:
• The current slowdown is balancing the unsustainable growth seen in the wake of the pandemic, which had resulted in strong inflation pressures. The economy is now moving back into a position of better balance with easing capacity pressures as demand has cooled.
• Economic growth stalled over the past year, and GDP is only expected to grow by 0.7% over 2024. Growth will be weak in the first half of 2024 but pick up modestly later in the year. Unemployment is expected to gradually rise to 5.4% in mid-2025.
• The ongoing recovery in tourism and strong net migration continues to put a floor on growth, although per capita growth is weak.
• Growth is being restrained by tight financial conditions and sub-par demand in our key trading partners’ economies. Despite weak growth inflation remains sticky.
• Lingering domestic price pressures mean that OCR reductions are still not expected until early 2025. The eventual easing in borrowing costs is expected to see a recovery in economic growth taking hold from 2025.
• Key areas of uncertainty include the resilience of household spending, the health of the global economy, and the persistence of inflation pressures.
Household spending
Spending is a key concern for franchisees, and Westpac says that high inflation, increases in borrowing costs and a cooling labour market will keep household spending weak in 2024. However, income tax reductions will provide some offset, boosting spending in the second half of the year.
Households’ debt servicing costs likely remain manageable. While mortgage rates have risen from low levels, debt servicing costs relative to disposable incomes have returned to long term average and the unemployment rate is expected to settle moderately above trend levels.
Nervousness about financial pressures and the softening in the labour market could result in a more pronounced downturn in spending. On the upside, if New Zealand sees a more gradual cooling in the labour market (as we’ve seen in other countries), spending appetites could prove to be resilient.
House prices
House prices are important to potential franchise buyers for two reasons: first, buyers often use the equity in their house to help secure finance for their new business; second, when house prices are increasing rapidly, they can seem a more attractive option for investors (although the drops of the last few years have reminded people of the risks).
The good news is that Westpac’s forecasts suggest that house prices are due to out-perform inflation, although not providing huge returns. Prices will rise 5.8% in 2024 and 6.7% in 2025, supported by strong population growth, rental demand and investor demand later in 2024. Westpac estimates 125,000 more houses are needed in the next five years – suggesting a positive outlook for home and building franchises.
Business sector
Westpac finds that businesses across the country have highlighted increasingly tough trading conditions, although service sector conditions have been more resilient. Pressure on operating costs, with related pressure on margins, will constrain capital expenditure.
With economic growth cooling, hiring has slowed and businesses have reported a fall in staff turnover. Businesses have also reported that it’s become easier to find staff and that the pressure on wages has eased.
Tourism recovering
While there are few franchises which operate directly in the tourist industry, tourism spend is important for travel, accommodation, food & beverage, retail and many other parts of the franchise economy.
Over the past year inbound visitor arrivals have continued their post-pandemic recovery, rising to around 80% of 2019 levels. The pace of recovery has slowed over the past six months, with arrivals from China (around 50%) and much of Europe (around 70%) remaining well below pre-pandemic levels. A rebound in arrivals from the US has been a bright spot. Looking ahead, Westpac expect the recovery to continue with the pre-pandemic peak in visitor arrivals to be surpassed in 2026.
The outlook for franchising
While all of the forecasts outlined above are subject to changing global and geo-political events, the overall impression that the Review gives is that the economy cycle is at or near the bottom of the cycle and that better times are ahead.
That’s good news for existing franchisors and franchisees, who can start to plan for the future with more confidence. The events of the past few years mean that good franchisors will be acutely aware of costs and will have adjusted their business models accordingly to maximise franchisee profitability. That will pay off as conditions start to improve.
These adjustments will also benefit new franchisees. Anyone looking at buying a franchise right now may find this a good time to investigate – starting a business at the bottom of the cycle means you have more time to learn and develop your skills and customer base as you grow.
See below for Westpac’s summary of the economy in 8 charts and download the full Economic Overview in pdf form here.
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