COVID-19: Business Closures Spike 130 Percent

As pressures mount and with no clear end in sight, businesses that have held on through months of COVID disruption are starting to fold.

While fewer businesses than normal closed between October 2019 and October 2020, most likely due to the wage subsidy which gave a boost to businesses that may have closed for reasons unrelated to the pandemic, new data shows all that started to change at the end of last year.

In September through to November last year, 16,234 businesses closed permanently, compared to 7154 in the same period in 2019. That is an increase of 127 per cent.

“There have been more liquidations compared with any other time in the last five years, but we’re not yet close to the peaks reached between 2008 and 2011 during the aftermath of the GFC,” noted Justin Lester, government director at Dot Loves Data.

“What we are seeing is people in Queenstown, Wanaka, the West Coast of the South Island, Te Anau, these areas are heavily affected … the longer this goes on, the worse it will get and compound. We’re far from being out of the woods, it will take time.”

Lester said that the impact was not as bad as had been expected, however, it is possible that New Zealand won’t see the worst of it until next year or even later.

ANZ economist Sharon Zollner explained that domestic tourism had been a boost through winter, when normally there would be more New Zealanders heading overseas on holiday than foreigners coming here, but from September, the “giant hole” in the cashflow of many tourism and other service businesses had become obvious.

Zollner said it was not possible to put the tourism sector on hold indefinitely and the Government could not afford to save every business, particularly when it was not clear what type of tourist would come to New Zealand when the borders opened again nor the numbers. She also noted that when borders did open again, retail could suffer because people would return to saving for overseas holidays rather than treating themselves to things like spa pools at home.

“There are quite a few zombie businesses at the moment, people not drawing a salary, relying on government assistance, but hanging in there,” commented Employers and Manufacturers Association chief executive Brett O’Riley, adding that even though the numbers of closures was still relatively low, this could potentially be the tip of the iceberg.

“The number is disturbing and even more when you think of how much stimulus has been put into the economy.”