Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: A positive charge in these difficult times

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Prime Minister John Key and Minister of Finance Bill English. Photo / Listener
Prime Minister John Key and Minister of Finance Bill English. Photo / Listener

Our business leaders remain optimists at heart, which is a good thing. Business culture is at its best reflecting a determined belief that, when the right moves are made at the right time, we have reason to expect outcomes will be positive.

The overwhelming majority of respondents in the 2013 Mood of The Boardroom survey indicated they see New Zealand as going forward over the next decade. Only a small minority felt New Zealand was slipping back.

When rating the prospects for their own business and the domestic economy the majority of business leaders report they are more optimistic than they were a year ago. They are more confident the next 12 months will see them increasing staff and investing in capital and IT. Of course, when you drill down into the various concerns facing the economy there is plenty of realism to temper things. The Christchurch quake still looms large with construction cost pressures and insurance costs being two of the issues causing the most worry.

Perennial business concerns on issues like tax, currency and government spending still have a place in the thinking of business leaders. But it is promising to see that levels of concern about the ability of businesses to raise capital - through either debt or equity markets - is now very low. This suggests several years of stimulatory interest rate settings and a resurgent stock market may be providing the ignition the economy needs. Broadly, there are plenty of signs the domestic economy is in better shape than for some time. But there are clouds on the horizon and no shortage of issues threatening to undermine what is, after all, a fragile recovery.

New Zealand remains very much at the mercy of global economic forces and this is reflected in the two international issues which are most concerning for respondents in the 2013 Mood of the Boardroom Survey.

The strength of the Chinese economy and of the Australian economy are both big causes for concern among our business leaders. Unsurprisingly so. These are our two largest trading partners and both have had a stellar run right through the worst global economic downturn of our era. That's been a saviour for this country. Our financial sector is underpinned by the Australian banks and our agricultural export sector has been underpinned by booming Chinese demand. Now China is willfully slowing its economy and that is hurting Australia.

There are some hopes the direct impact of the Chinese slowdown may be limited in New Zealand. China is highly focused on shifting the balance of its economy away from manufacturing and construction towards domestic consumption and consumer spending. That doesn't bode well for the price of hard commodities like steel, coal and iron and the mining states of Western Australia and Queensland are seeing growth slow quickly. Listed New Zealand retailers have already taken a hit on the slowing Australian economy as consumers there rein in their spending.

We can only hope that the kind of slowdown that rattles the Australian consumer is not sufficient to rattle the Australian banks or other financial institutions. It seems unlikely given the vast savings rates and deep wealth across the Tasman.

Nevertheless, whatever the strength of the slowdown, New Zealand will feel it. We remain economically intertwined with Australia.

Politically the external threat of an Australia and China "double whammy" must be a concern to the Government. There is little it can do to control the external risk but after five years of waiting patiently for the slow and steady path to economic recovery to pay dividends, English and Key can ill afford another dip. At least not in the next 15 months or so.

If the Mood of the Boardroom survey was any kind of indicator of political polling, National would have little to worry about. John Key still rates very highly with business leaders. David Shearer barely rates at all.

Clearly this survey is no broad cross section of the New Zealand public but even the mainstream political polls show the Government's support holding up well. Perhaps that reflects the relatively benign state of an economy in slow recovery. Low interest rates and low inflation coupled with rising house prices are winning combination across a large chunk of the electorate.

We are at something of a crossroads. If the recovery kicks on we will see consumers squeezed as interest rates and inflation rates rise. If global issues see us stall again, the patience of the public may be tested. The times remain difficult but it is reassuring to know that those leading the economic charge are feeling confident and positive.

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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