Hints of an economic recovery early in the new year, albeit tentative, were dissipated when the second devastating earthquake rocked Canterbury in February.
Some sectors did expand in the March quarter – retailers, wholesalers, manufacturers and primary industries, for example – but nationwide business and consumer confidence slumped, business activity in Christchurch was severely disrupted, and tourism flows through Christchurch and the South Island evaporated.
Two surveys in mid-year brought better news: business confidence was improving and modest growth was portended. The NZIER’s Quarterly Survey of Business Opinion showed steady economic activity in the June quarter after the significant disruption following the Canterbury earthquakes last September and – more severely – in February.
Business expectations and intentions for September improved, “but we are yet to see the catalyst that transforms this confidence into hiring and investment”, said Jean-Pierre de Raad, the NZIER’s chief executive. Local demand had strengthened while exports had stabilised, but demand was still the biggest constraint on businesses and margins were tight. Continued deleveraging, slowing activity in Australia and high exchange rate were obstacles to economic growth.
The National Bank’s June survey found business confidence lifted another notch, but other indicators from the survey generally stabilised around May’s readings, such as expectations of better times for respondents’ own business over the year ahead and investment intentions, although employment intentions slipped slightly. Rural regions were doing nicely, thank you, reflecting the massive terms of trade boost that has been benefiting the economy.
But the National Bank economists were not ready to say their cheering business confidence readings would translate into reality. Time will tell, they said, although they noted the general tenor of New Zealand’s leading gauges were at odds with the global scene. Various business confidence measures in the US had been slipping sharply and the momentum was softening in Australia, our largest trading partner.
The lift in sentiment was reinforced by an upwards revision of economists’ forecasts. The NZIER’s June Consensus Forecasts said forecasters were slightly more optimistic than they had been in March. They expected 2.1 percent GDP growth (up from two percent) in 2011/12 March year and four percent (up from 3.9 percent) in 2012/13. They were more optimistic of the investment outlook, particularly the Canterbury rebuild. Residential construction is expected to surge, eventually.
As the growth picks up, the Government can (and probably will) say everything is going to plan. But what is the plan?
Questioned in Parliament about youth employment levels, minimum wage rates, and job creation, Labour Minister Kate Wilkinson said the Government had “a cogent plan” to increase and improve the economy, which included growing the number of jobs. Could she explain the Government’s “cogent plan” on job creation? She could. “Our plan is basically around building stronger economy.”
More detail, of course, can be found in the 2011 Budget. Finance Minister Bill English promoted it as “a balanced and responsible Budget that is setting New Zealand on the road to recovery by keeping our credit rating up, which helps to keep interest rates down; maintaining welfare entitlements; investing $7.5 billion in productive infrastructure in the next four years; investing $323 million in very successful insulation and heating programme for 180,000 Kiwi homes; and providing record spending on front-line services in health, education, and law and order”.
But economic writer Rod Oram is among critics who lament the Budget’s lack of an investment strategy or convincing growth plan. The strong outflow of skills to Australia is an expression of despair at the Key Government’s lack of vision or plan – Australia offers better life with higher wages and more opportunities.
A survey of business leaders by Jenni McManus for Fairfax’s Business Day gives strength to this. Top of the list of the six biggest issues for business is that there is no overarching economic strategy or vision – “or even an economic road map”. These leaders were giving the National Government only five out of 10 for its performance in the past three years. But Labour at that time had yet to produce its plan. M
Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.
