Economy Hub: Can our farmers rescue the economy?

ASB senior rural economist Nathan Penny sees a few positives in the farming industry. Photo/123RF.

With the domestic economy peaking and GDP growth slowing, can the rural sector ride to our rescue?

There are some big positives that could drive an export-led recovery for New Zealand's economy, said ASB senior rural economist Nathan Penny.

But it is important to first recognise that negative farmer sentiment has been at the forefront of the business confidence slump in the past year, he said.

Issues like Mycoplasma bovis, drought conditions at the start of the year and uncertainty about new Government policies were taking a toll on sentiment, he told The Economy Hub this week.

"Things haven't been too flash. But fundamentally the New Zealand agriculture sector is quite well placed."

Lamb prices were touching record highs at $8 per kilo, kiwifruit was going strong and likely to go through $2 billion of export earnings this season.

Beef prices were solid and even dairy - despite Fonterra reducing its payout forecast - remained reasonably strong by historic standards, he said.

If prices held at current levels then dairy farmers looked likely to have their third positive season in a row.

On top of that, the lower New Zealand dollar was going to boost returns to farmers, he said.

The kiwi has fallen by nearly 12 per cent since the start of the year.

Where that was being driven by global commodity weakness and trade tension at the start of the year it was not such a good news story, Penny said.

But the recent fall - since Reserve Bank's last monetary policy statement (which pushed back the timing of rate hikes) - was all good news because it was very much a New Zealand-led story, he said.

"It is a boost and we expect to see that flow through into incomes over the remainder of 2018," he said.

The other big positive was the likelihood that production conditions improved this season.

"Production was very poor last year. We had a wet spring and we followed that with a very dry summer with drought in some parts," Penny said. "When we add the good prices on top of a potential rebound in production we should see farmer incomes lift this season. That should be boosting New Zealand's economic growth."

However, he warned there were still questions about confidence and sentiment.

"Are farmers going to be spending and investing? There's still a bit of uncertainty about that and farmer confidence is still low," Penny said