3. Recession vs. Stagnation - What’s the Real Risk for NZ Businesses?

Clarifies what each scenario means and what indicators SME owners should watch

1. Introduction

Right now, many SME owners are unsure whether they’re operating in a recession, heading toward one, or stuck in something more subtle. The media talks about both recession and stagnation, sometimes in the same breath. But what do these terms actually mean for small businesses and which is more relevant to the decisions you’re making today?

This article belongs to Pillar 1 - The Economic Reality. Our goal is to explain the difference between recession and stagnation in simple terms and help you identify which one your business might be feeling. We’ll also look at what indicators to watch, what actions to consider and how to respond without jumping at shadows.

2. Representative Narrative

Kiri owns a joinery business in Invercargill. Over the last year, she’s noticed some shifts. Orders haven’t collapsed, but they’ve stopped growing. She’s still busy but not booked out. Freight costs are higher. Staff are finishing their days earlier.

Her accountant mentioned that New Zealand might be heading into a technical recession. A friend said it feels more like the economy has just “gone flat.” Kiri isn’t sure what to make of it. She isn’t in crisis, but she feels uneasy.

She reached out to John Luxton, a business advisor at RegenerationHQ, who has worked with SME owners across the country. He listened carefully, then helped her walk through some of the wider indicators. “It’s not always about the big headlines,” John said. “It’s about how those trends show up in your numbers, your staff and your customers.”

3. Recommended Actions

• Understand the difference
  A recession is when the economy shrinks for at least two consecutive quarters. It usually means rising unemployment, falling demand and reduced investment.
  Stagnation means growth is so slow that it feels like nothing is moving. Businesses still operate, but growth is minimal and conditions remain tight.

• Use your own data as your primary signal
  Check whether your business is shrinking or simply slowing. Compare the last 6 months to the same period the year before. Look at leads, orders, staff utilisation and customer sentiment.

• Plan for lower demand and tighter margins
  In either case, now is the time to secure cash flow, manage costs and resist overextending.

• Keep context in mind
  Some industries are hit harder by recession, like construction and retail. Others, like health services and core trades, may just flatten. Your response should match your exposure.

4. Expected Outcomes as Narrative

After reviewing her figures with John, Kiri saw that while orders were steady, her profit margin had quietly slipped due to rising costs. Her team was still productive, but customer payment times had stretched.

They worked through a basic scenario plan. If the economy moved into recession, she would pause hiring, tighten stock ordering and contact key customers to discuss project timing. If things stayed stagnant, she’d invest in improving workshop efficiency and quoting processes to boost throughput without adding costs.

John encouraged her to check in monthly and treat this period as a cycle, not a verdict. “Business isn’t broken,” he said. “It’s just in a different rhythm.”

5. Red Flags & Mitigating Strategies

Red Flag 1 - Treating stagnation as “not a problem”
Mitigation -  Regularly review cash flow, margins and sales pipeline to detect silent decline

Red Flag 2 - Making sharp cuts based only on media stories
Mitigation -  Anchor decisions in your actual business trends, not public fear

Red Flag 3 - Waiting for conditions to change before taking action
Mitigation -  Make small adjustments now to remain steady regardless of external recovery

6. HR Best Practice

Staff often feel uncertain during economic slowdowns. Whether you’re facing recession or stagnation, clear communication matters.

• Explain the situation in real terms

• Be honest about the business outlook while reinforcing stability

• Offer cross-training or role flexibility to keep engagement high

• If cost-cutting becomes necessary, lead with empathy and comply with fair process

John often reminds owners that how you treat staff during lean periods will shape how they show up for you when growth returns.

7. Psychological Perspective

Stagnation is slow. It wears on confidence. A recession is sharper and can trigger anxiety. Both can lead to self-doubt, overthinking or decision fatigue.

Recognising this early is key. Owners who stay mentally grounded are better able to lead through grey periods. John encourages SME leaders to build in quiet thinking time each week, even just an hour, to reflect without reacting.

8. Recommended Owner's Mindset

This is a time for disciplined realism. Don’t panic, but don’t coast either. Watch the data, listen to your team and maintain flexibility in your plans. Whether the economy dips or drifts, your steadiness will matter more than your speed.

9. Reflective Questions for the Owner

• Am I seeing a drop in demand, or just a slowing pace?

• Which parts of my business are most vulnerable right now?

• What data am I watching regularly and what might I be missing?

• Am I reacting from fear, or responding with purpose?

• Have I spoken with a trusted advisor about my current position?

10. Suggested Ongoing Actions

• Monitor GDP updates and business confidence surveys

• Compare your revenue trends to industry benchmarks quarterly

• Run a basic “what if” cash flow model for 10 percent and 20 percent drops

• Identify one efficiency improvement project you can start this month

• Check in with an advisor like John Luxton quarterly to sense-check decisions

Critical Takeaway - Recession is sharp and fast - stagnation is slow and silent - either one can drain your business if you’re not watching closely and acting early.

If you’d like a confidential, free of charge, free of obligation conversation about your business, here’s how to get me.

📞 Phone +64 275 665 682
✉️ Email john.luxton@regenerationhq.co.nz
🌐 Contact Form www.regenerationhq.co.nz/contact

If you’d like to read more RegenerationHQ thinking on SME business and other things, go here – www.regenerationhq.co.nz/articlesoverview

🔹 RegenerationHQ Ltd - Business Problems Solved Sensibly.
Supporting NZ SME Owners to Exit Well, Lead Better and Build Business Value.