Liam Dann: Economy's bright spots give us reasons to be cheerful

This year's Mood of the Boardroom is relatively upbeat. Photo / Thinkstock

There is always reason for optimism - albeit cautious. Some years you just have to look a bit harder for it than others.

Six weeks of rugby festivities aside, 2011 has been pretty grim. Early signs that New Zealand was finally ready to rebound from the lows of the 2008 financial crisis were quickly crushed - first by the Christchurch quake and more latterly by a European financial crisis which threatens to pull the world back into recession for the second time in three years.

But business is not a place for the faint-hearted and those who find themselves unable to look through the gloom are seldom well suited to corporate leadership. So perhaps it shouldn't be so surprising that this year's Mood of the Boardroom is relatively upbeat - at least in terms of how business leaders rated the prospects for their own companies.

Most respondents are planning to authorise more capital expenditure next year. Most expect to authorise more IT expenditure, most expect their revenue to grow. Employment expectations are not quite so strong, but still some 37 per cent expect to increase staff compared to just 21 per cent who expect to shed staff. A further 40 per cent expect staffing to stay the same.

Overall more than half of respondents are more optimistic about their own business than they were a year ago. That's encouraging in a climate where broad economic growth remains weak.

And it is not like this is naive optimism. Just 14 per cent of respondents were able to say their business was completely unaffected by the European Financial Crisis. Just 16 per cent could say the same about the slower than expected US recovery.

Business leaders in New Zealand are well aware of the troubles faced by the world. But clearly there is some belief that, despite the risks, New Zealand will see more significant economic growth next year. Why? Where are those causes for optimism?

Well the best news for this economy is that there are still historically high levels of export dollars flowing into the country. The global slowdown has hit commodity prices but the country's major exporters - the food producers - have seen their products hold up relatively well. Dairy has fallen from the record heights it hit last year but is still tracking well above the 10-year average price.

The payout price to farmers may be down but a bumper production season - which even the badly timed Maui gas outage could not derail - should also help keep dairy farmer cashflow up in the coming year. There is plenty of debt for farmers to be paying down and cash may not flow quickly into the wider community but the fact it is flowing at all is a crucial buffer while we struggle to rebalance the rest of the economy.

On the domestic front there is the long-awaited stimulus of the Christchurch earthquake rebuilding to look forward to. The ongoing nature of the quakes has delayed rebuilding longer than was hoped. But insurers are beginning to pay out and work is beginning to get under way - at least on a small scale. We should see an acceleration of that activity through the next 12 months.

Its not the kind of economic stimulus this country needed or wanted but it will nevertheless provide a short-term boost which will trickle through the economy at a time when it will make a difference.

Then there is there financial sector - the stock market and investment industry - which has not looked this promising for almost a generation.

KiwiSaver is starting to reach a critical mass and the NZX-50 is starting to see some listings again.

National hasn't really gone on the offensive over asset sales. Given polls show the policy is considerably less popular than National or John Key, that is not surprising. When Key and Bill English do talk about it they don't put the boost it will give the financial sector at the top of their arguments.

But it will provide a boost. This is a sector which needs to be strong if New Zealand is to raise the capital it needs to fund future business growth without continually looking offshore.

So there are bright spots. Agriculture, construction and finance is not a bad front row of industries with scope for growth in 2012.

Others will still be doing it tough. Nobody is expecting a sudden turnaround in retail or the property market. These sectors have been flat for three years now and those involved have had to adapt to the much talked about "new normal".

Most worrying is the risk to the fragile manufacturing export sector which has been buffered by the strong Australian economy and a decent transtasman exchange rate for the past year. Australian growth has already slowed and the threat of European woes knocking the top off the Chinese boom adds to the concern for our nearest neighbours. If that scenario plays out then hopefully some of the downside will be offset by a lower kiwi dollar. That's how our free-floating exchange rate is supposed to work for us.

That's something we have going for us that Italy and Greece don't, the ability to set the fiscal and monetary policy quickly and precisely to meet our needs.

And we should be thankful for that. As much as Europe provides cause for pessimism about 2012 it also offers us a healthy reminder of the problems we don't have. And that in itself is cause for some cautious optimism.

*Liam Dann is the editor of the Business Herald.