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Straight shooting with Cameron Bagrie

2 Nov 2023

A new government signals a new direction and change. Sentiment has lifted. 

Business confidence has risen to the highest level since mid-2017 with a net 23% of businesses confident about the economy, almost as if a magic potion has been formulated.  

Should we get excited? Beware the snake oil in magic potions. Business confidence is higher under a blue hue than a red one. There’s a bias. 

Business confidence was negative every month under the previous government excluding four months (three of them when we bounced out of the first COVID-19 lockdown and the fourth in September 2023 the month prior to the election). 

The economy did reasonably well with the unemployment rate sitting below 4% over an extended period. Business confidence is a poor economic indicator. Sentiment needs to be matched by substance to manifest in economic outcomes. Ignore business confidence but not the other questions in business confidence surveys, which are the questions that matter, particularly when asked about their own business. 

Any new government always blames the departing one for a host of problems. We’ll see a lot of that over coming weeks.

Inflation is still a problem and taming it does require some pain. The Reserve Bank’s November Financial Stability Report points to resilience, but also more stress on households and businesses: “Asset quality is currently high, but banks are preparing for a likely deterioration over the medium term.”

Both the Standard and Poor’s and Fitch credit rating agencies have endorsed New Zealand’s AA+ rating, which means we can’t be in too bad a place overall.  

There’s a big list of “to dos” though. Top of list is getting a policy platform that can bring New Zealand a step together. Division – which we have – is both economically and socially corrosive. Education, health, infrastructure, and law and order require a lot of attention. New Zealand has the largest current account deficit in the OECD, signalling an unbalanced economy. 

Businesses and households would be folly to look to government for providing all the solutions.

The seeds of the next economic upswing will ultimately be sown by businesses. Market signals such as currency movements provide direction too, a lower currency helps exporters and rotates growth from spending to earning. 

Tough times bring appetites and the need for change. Cost structures get analysed. Different ways of doing things identified. Good businesses take over bad and poorly run businesses. Higher labour costs encourage substitution for technology and capital investment.

We’re entering a phase where we need to be reading between the lines. Bad news, such as the demise of an entity, can ultimately be good if that entity is replaced, or gobbled up by a better one. That’s an economy at work. We need to see that in action over the coming years.

The danger is that we reach for easy levers such as migration, take the dividend (growth) but fail to fund it properly (infrastructure, housing), and complacency sets in. 

We need substance rebuilt into the growth equation and productivity and innovation provide it. “Back to basics” has been used as a political tag line and it applies to households and businesses too. 

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