Source: Radio New Zealand
Empty chairs in an office meeting room. Supplied/ Kenny Eliason
New Zealand firms appear to have become more cautious about investment in recent years, which could have a negative effect on future productivity and economic growth.
An Insight report by the Institute of Economic Research (NZIER) indicates there had been a shift in investment behaviour and risk appetite since the global financial crisis.
“Since the GFC, investment in productive assets (capital) has not kept pace with the workforce, raising questions about whether firms have become more cautious about long-term investment,” the report says.
“Since 2018, current assets have increased as a share of total assets across industries. This may indicate that firms are placing more weight on liquidity and short-term resilience, although the trend should be interpreted carefully,” the authors said.
The report indicates a shift to more current and liquid assets was a concern.
“When firms invest in new equipment, buildings, technology, and innovation, they increase the economy’s capacity to produce more goods and services. But when firms delay investment, capital renewal and productivity growth can slow over time.”
The report indicates the increase in current assets may also reflect inventory accumulation, receivables growth, or valuation effects, rather than a deliberate shift away from long-term investment.
At the same time, higher borrowing costs and tighter credit conditions had made it harder for businesses to take on investment debt.
“It may reflect rational risk management by businesses facing uncertain demand and higher financing costs,” the authors said.
“However, if weaker investment persists, it could slow the renewal of capital, delay innovation, and hold back productivity and wage growth over time.”
NZIER said it was important to understand the drivers behind the change.
“New Zealand’s future prosperity depends in part on firms being willing and able to invest. The challenge is to ensure that the policy and financing environment supports productive investment while recognising the uncertainty firms are facing,” authors said
“Business investment is critical to productivity, innovation, and long-term growth in living standards.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand