Boardroom: Survey shows lowest global confidence rating since GFC

Thomas Pippos, chief executive of Deloitte New Zealand. Photo / Jason Oxenham

Survey shows lowest global confidence rating since GFC, writes Fran O'Sullivan

Donald Trump's twitter feed gives an intriguing insight into the latest twists and turns in the trade war he is waging with China. But despite the entertainment value, the trade war is no laughing matter.

The latest estimate, by JP Morgan Chase, is that the average cost to US households will be about US$1000 (NZ$1585) a year after the next round of tariffs on Chinese goods is imposed.

The Fed chairman, Jerome Powell, is also reported to have linked the deterioration in the outlook for global growth and weak US manufacturing and capital spending to US trade policies.

Back here in New Zealand, CEOs responding to the 2019 Herald survey say the trade war between the two elephants of global trade is the biggest international issue affecting business confidence. They rate the trade war's severity at 7.65/10.

"We are part of the global system, what occurs elsewhere impacts on us in New Zealand," says independent director Cathy Quinn. "No one believes that we are economically isolated or insulated from global events."

Other concerns such as growing protectionism where new trade wars are erupting such as that between Japan and South Korea; uncertainties about the Chinese economy and resurgent fears about the prospect of an international recession have combined to send NZ CEO's confidence in the global economy to a record low on a weighted average basis of 1.7/5 in the Herald survey — the lowest seen since the global financial crisis.

Mainfreight's Don Braid, whose logistics business spans both the US and China, says New Zealand business should "take advantage of our neutral positioning to develop more trade".

"We are an export-led economy so any risks that affect confidence hurt us as an importer of products and talent," said a leading FCMG player. "We need policy that makes us as competitive as possible against much bigger players."

Cautions leading chair Dame Alison Paterson: "The environment is uncertain and people do not perform well in uncertain times."

Trade-related issues have pipped cyber-security as the number one international concern for business.

China is also flexing its muscles as it emerges as a leading world power sparking concerns about the South China Sea and domestically with its stance on human rights issues.

And there are other impacts from the increasing tensions between the US and China — NZ's largest trading partner — which are spilling over to affect sentiment.

Asia New Zealand's latest Perceptions of Asia survey found 32 per cent of respondents believed China posed a threat to NZ (up from 16 per cent the previous year; with 49 per cent considering China was friendly to New Zealand, compared with 62 per cent the year before).

Some 46 per of CEO respondents felt similar perceptions were also gaining currency in business.

But 30 per cent disagreed.

"A lot of the perceptions come from misinformed sources," said the chief executive of an Australian bank. "My perception is that many New Zealand businesses are benefiting from investing the time and effort in understanding how to do business in China."

Chorus CEO Kate McKenzie said, "I think people are more aware that there is a need for greater understanding of China and its ambitions and its culture and how they are different from Western thinking and the risks and opportunities inherent in that."

Asked if Fonterra's losses on its Chinese investments raised the question of whether NZ — and companies — have too many eggs in the China basket and should pursue greater regional diversification, about 54 per cent of respondents said yes.

But 30 per cent said China wasn't the problem. Many cited poor investments by Fonterra.

"Fonterra is simply a case of poor management and governance," said a leading retailer. "Regional diversification for any global player is common sense but it won't necessarily insulate from global easing."

ANZ Institutional managing director Paul Goodwin said, "I think China has been a remarkable success story for New Zealand. But we need to recognise that our dependence is significant and each business doing business with China needs to test itself on what level is appropriate — normal portfolio risk management practice."

An energy sector CEO was to the point. "We need a mature and consistent approach to trade deals. But the risk of China putting a bullwhip through the NZ economy is real.

"NZ is racist towards Asian economies because we think colonially we are superior. Last time I looked the British empire was long gone."

When it came to the United States, 30 per cent felt New Zealand was coming under too much US influence on key questions such as using Huawei in domestic 5G networks amid claims it represented a security threat.

"New Zealand is best to stay away from the two bull elephants staring each other down," said Deloitte CEO Thomas Pippos.

"It is too easy to become collateral damage.

"One of our key strengths is our global irrelevance that should allow us to work with all.

Cautioned a tech services head: New Zealand should be aware and operate an "eyes wide open" vigilance to all international corporate intrusion.

"This includes vigilance around what the US social media giants are doing with our data too.

"More legislation to protect NZ and our citizens is needed here."

Go for a bilateral FTA with United States

If a bilateral free trade deal with the US does ever come up in talks between Jacinda Ardern and Donald Trump, there will be a large number of New Zealand business leaders saying, "Go for it".

President Donald Trump. Photo / AP

A large majority — 79 per cent — of respondents to the 2019 CEOs survey say New Zealand should pursue a free trade agreement with the US.

"With the breakdown in global trade rules and frameworks and the lack of appellate judges at the World Trade Organisation other arrangements will be important," said a dairy company boss. "But New Zealand needs to be selective and understanding of the trade-offs."

"My answer is 'probably'," says ICBC NZ chair Don Brash. "But it depends a bit on what pound of flesh an extremely mercantilist regime in Washington would extract for greater access to the US market."

Director Joanna Perry says New Zealand should purse a deal if it is the only way of ensuring we can continue to trade with the US.

"Despite my personal wish to 'ground' Trump, at the moment the US market is too important to the NZ economy."

Foreign Affairs Minister Winston Peters has already met twice with US Vice-President Mike Pence to press the case for a bilateral FTA. Pence is believed to have given a commitment to support it to the President.

Two-way trade has consistently been growing between New Zealand over the past 10 years. Trade with the US is underpinning a crucial change in the New Zealand economy to high-value goods and services that deliver high-paying jobs. The most recent trade data shows that in many of our highest-value sectors the US is NZ's number one market.

The US is:

• 3rd largest export market ($9.24b) — behind China ($18.95b) and Australia ($14.08b)
• 2nd largest market for services ($3.6b) — behind Australia ($5.19b) and ahead of China ($3.3b)
• #1 market for intellectual property exports/charges ($243m) — ahead of Australia ($184m) and UK ($57.89m)

On becoming President Trump pulled the US out of the TPP (Trans-Pacific Partnership) and began making bilateral deals with other parties.

Grant Samuel's Michael Lorimer urges caution: "We will get screwed under the current Administration."

It is a sentiment underlined by a funds boss who says better to hold out with the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) agreement and negotiate as a bloc with the US. "By ourselves we will get screwed on dairy, IP, and Pharmac."

Westpac CEO David McLean is also concerned New Zealand might have to give up too much.

A legal firm head said it was a waste of time under the current US Administration. "Probably best to keep a low profile rather than drawing attention to ourselves by attempting to seek what could easily be perceived as 'unfair' advantages."

Phillip Mills of Les Mills said any deal could not be allowed to undermine health, social and environmental standards.

If a "no" Brexit occurs, we may be better to do a FTA with the UK," said Barfoot & Thompson's Peter Thompson.