New Zealand Reserve Bank Governor Adrian Orr has apologised to Kiwis as we head into darker economic times this year. At the time of the release of the RBNZ’s Monetary Policy Statement (MPS) late last year, he told us to think harder about spending as New Zealand faces a year-and-a-half of zero or negative growth.
“We are sorry New Zealanders have been buffeted by these significant economic shocks and are experiencing inflation well above our central bank 1-3 percent target range,” he said. He added that labour has never been more scarce and that the employment participation rate is at record highs.
“Unemployment is at an incredibly low [level]… we have a list of indicators of stretch in the labour market and they are all at or near record levels,” he explained. One reason is that we have heavily relied on immigration to fill our labour gaps previously and, because this is now missing, its putting the brakes on our economy.
While the NZ government is taking steps to increase the number of immigrants coming into the country, Orr said opening the floodgates would bring its own issues. “While new migrants increase supply capacity, they also have their own demand, including for more housing and infrastructure,” he added.
Causes of NZ’s likely economic recession
Some recessions can be linked to a particular event, like the stock market meltdown and global financial crisis in 2008-2009, while others are caused by a combination of factors. The recession we’re currently facing can be attributed to a mix of rising interest rates, falling consumer confidence, and low levels of investment. These have been stoked by other adverse events like the Covid pandemic and the war in Ukraine.
Even the high-flying international tech sector has been hit hard by the tough times. Tech giants Microsoft and Alphabet made news recently after announcing they will collectively lay off 22,000 employees between them. As the U.S is a big market for New Zealand tech companies, we’re likely to experience the roll on effect of these decisions in coming months.
What is the likely impact of recession on the domestic technology sector and the New Zealand IT labour market? It’s human nature to hunker down and weather financial storms and many companies and retailers, including those in the tech sector, may be tempted to act defensively and prepare for the tough times ahead.
In previous recessions, for example, businesses have cut back on spending to save money and help them weather the economic downturn. This has often translated into decreased spending on technology and associated services.
NZ tech industry on a growth trajectory
The latest figures show New Zealand’s tech sector is on a trajectory of rapid growth, with revenue and exports up 9% last year compared with 2021. Our tech sector earned 76% of its revenue overseas, generating over $11 billion in exports, or 14% of NZ’s total, making it second only to our high-profile dairy sector.
While this export strength is great for our economy, a global recession this year could hit our export-led tech sector hard. However, a unique aspect of NZ’s technology market is that it is heavily focused on software and services. According to the New Zealand Technology Industry Association, these segments make up around 75% of our technology exports.
The good news is that software and services are seen as ‘sticky’ products, which means they tend to be more resilient to economic downturns than hardware and infrastructure. This is because businesses and organisations often view software and services as necessary investments, even during a recession, to help maintain operations and competitiveness.
The New Zealand government also plays an important role in the technology market, with various initiatives and programmes in place to support the industry. These include funding for research and development, as well as initiatives to attract international technology companies to this country.
NZ tech industry shows robust signs for the future
During a recession, our government may be more likely to increase funding for these types of initiatives, to stimulate economic growth and create jobs. This will have a positive spin off for the technology labour market, as highly skilled staff continue to remain in demand due to the resilience of our tech industry.
Additionally, we are expecting an influx of skilled immigrants which will help ease the overheated tech labour market. In fact, this sector could even grow this year, as businesses turn to technology to introduce efficiencies and lift profitability through AI, automation, and remote working technologies, amongst other initiatives.
So, while the world – and New Zealand’s – economic future looks bleak for 2023 and beyond, the tech sector is showing robust signs and is expected to hold up more strongly than other sectors. This will have a positive impact on the outlook for our IT labour market.
Reach out to Techspace if you need help sourcing IT professionals for your team this year.
About the author
Gabriel Dragos is the Practice Manager – Resourcing at Techspace. He provides tailored recruitment solutions to a varied client portfolio within the New Zealand ICT market.
