Cause for optimism amid economic gloom - Editorial

Amid the gloom there is optimism the economic clouds will lift, the question is when. Photo / Hagen Hopkins

Editorial

THREE KEY FACTS:

• The Warehouse downgraded its sales forecast by 6-7%
• Stats NZ data showed fruit and vegetable prices were down more than 11% for the year
• A 2degrees survey found 53% of businesses anticipating revenue growth next year

OPINION

As we mark the halfway point of the year it’s easy to feel gloomy about the state of the economy and the various infrastructure woes making headlines lately.

The sight of a Cook Strait ferry running aground and a href="https://www.nzherald.co.nz/northern-advocate/news/northland-power-outage-pylon-collapse-transpower-chief-executive-alison-andrew-to-make-announcement/77DBD3SCGFHNJHLAC654SKATKA/" target="_blank">toppled power pylon in Northland is not healthy for the human psyche that feeds consumer confidence.

New Zealanders are still feeling the pinch from higher living costs, which is reflected in the increasing subdued consumer demand affecting big companies like The Warehouse.

The retailer earlier this week announced another downgrade to its financial outlook, forecasting annual sales to be around 7% lower than the previous year and earnings to be down about 60%.

“Another day, another downgrade,” one investment analyst remarked as The Warehouse struggles to get back on an even keel.

The update reflects just how difficult conditions are in the retail environment, and in the economy in general.

“Market conditions and cost of living pressures have continued to be challenging into our fourth quarter and we expect these conditions to continue through to our year-end,” interim chief executive John Journee noted.

But amidst all this, there is increasing cause for optimism.

While it may not feel like it, food prices have fallen, and it appears the Reserve Bank is winning the war on inflation.

The latest Stats NZ selected price index was a good one for consumers as it showed the food prices increased just 0.2% in the 12 months to May 2024, the smallest increase in six years.

Fruit and vegetable prices were down more than 11% for the year and cheaper prices for meat, poultry and fish also helped slow down overall food price increases.

Economists are starting to factor in significant falls in mortgage rates possibly starting as early as February, even though the Reserve Bank currently says any cuts to the Official Cash Rate were not likely until the second half of next year.

ANZ’s economists said yesterday they expected a downward trend in wholesale rates over the coming months, which would lead to “significant falls” in mortgage rates. Interest rates are just one piece of a complex puzzle but the current high levels are a significant handbrake to consumer spending and economic activity.

Although economic and business opinion data has been generally weak it was heartening to see some increased optimism about the economy in a recent survey released by 2degrees this week.

The telco’s annual Shaping Business study captures the views of 704 employers, ranging from businesses with one employee to over 51 employees.

The percentage of businesses optimistic about the status of their own business increased from 32% last year to 34% this year – although that was still lower than 36% who were optimistic in 2022.

But 53% of businesses reported they were anticipating revenue growth next year, rising from 50% last year.

2degrees chief executive Mark Callender told BusinessDesk the results indicated that business leaders were looking at the downturn as an opportunity to reset their businesses, get costs under control and get ready for the years ahead.

That’s a good sign as it shows business owners feel they are operating at the bottom of the economic cycle and sense that things will only get better from here. Let’s hope so.