The economy has turned. What does it mean for your business?

The economy has turned. What does it mean for your business?

Estimated Reading Time: 4 min

Two years ago the conversation in most client meetings was about how much lower interest rates might go. This month it flipped. The Reserve Bank lifted the OCR to 2.75% on 2 September, its second consecutive increase since tightening resumed in July, after annual inflation came in at 4.1% for the June quarter.

It pays to read past the headline. Most of that number is fuel. Strip out petrol and diesel and inflation was 2.9%, inside the target band, and the Reserve Bank’s own core measures are behaving. What the Bank is guarding against is a fuel shock, driven by conflict in the Middle East, leaking into freight, food, flights and eventually wage expectations. Its stated view is that inflation stays above 3% for the rest of this year, returns to the band by mid-2027 and settles near 2% late next year. Four of the seven committee members see the risks tilted upward, so further small increases are on the table if energy prices stay elevated.

For Hawke’s Bay the picture is more uneven than the national commentary suggests. Export-exposed regions like ours have outperformed Auckland and Wellington, and the last twelve months have been a genuine good season on farm. Beef + Lamb NZ reports a provisional record average farm profit for 2025/26, and dairy is heading into a third consecutive season with a milk price near $10/kgMS. Many farm businesses have used that cashflow to repay debt, catch up on fertiliser and deferred maintenance, and reinvest. That is exactly what strong years are for.

But the outlook for 2026/27 is tighter. Lamb prices are forecast to ease around 8% and beef 4.5%, while farm expenditure rises another 4% or so on the back of fuel, fertiliser and freight. A stronger dollar would trim export returns, and there is a real risk of a dry El Niño summer. Margins will be thinner, not thin, but the direction of travel has changed. Off farm, household spending and residential investment remain soft, and job security is weighing on confidence.

None of this is cause for alarm. It is cause for a proper conversation. Here is what I would be putting on the agenda with your advisor before the year gets away on you:

• Debt structure. If you have refixed or drawn down in the last two years, understand what a 2.75% OCR (and possibly 3%) does to your servicing cost, and when your terms roll. Fixed-rate expiry dates are a planning event, not an admin task.
• Provisional tax. A record 2025–26 result means large provisional instalments falling in a year that is likely to be weaker. Estimating down is legitimate and often sensible, but it needs to be done carefully and with a cashflow behind it.
• Cashflow forecasting under a lower price deck. Run your budget at the forecast lamb, beef and milk numbers, not last season’s, and add a fuel and freight sensitivity. Know where the pinch comes before the bank asks.
• Use of retained surplus. Debt repayment, deferred capex, succession and off-farm investment each have different tax and risk profiles. The decision on how to deploy a strong year is one of the most valuable ones you will make.
• Summer risk. If El Niño arrives, feed, water and destocking decisions have tax timing consequences (income equalisation, livestock valuation elections, adverse event provisions). These are far easier to manage with a plan in place.
• Exposure to currency and input prices. For exporters and anyone with significant imported inputs, ask whether some of that exposure should be hedged or contracted rather than left to the market.

The businesses that come through a tightening cycle in good shape are rarely the ones that predicted it. They are the ones that knew their numbers, kept their advisor close, and made decisions early while there was still room to move. If it has been a while since we sat down together, this is a good time to fix that.

About Ben Gilmour

Ben Gilmour is Managing Director of Nexia Hawke’s Bay, working with business owners and organisations across a range of industries. His experience spans business advisory, succession planning, financial management and strategic decision-making, with a particular understanding of the challenges faced by privately owned and growing businesses.

Ben works alongside clients to provide practical advice and help them make informed decisions about the future of their businesses.