New Zealand’s currency has fallen around 11% against the US dollar since mid-April. Business confidence has slid even more sharply.
But the PM, Jacinda Ardern, is looking on the bright side. She thinks the lower NZ dollar is good for exporters and a sign the economy is heading in a more productive direction.
As for business confidence, her economic ministers dismiss the surveys either as “junk” or an “over-reaction”. They argue the economy is growing, wages are rising and the government’s families package is fiscally stimulatory.
But is the economy, as the PM says, really heading in a more productive direction?
Key indicators suggest the foot has slid from the accelerator on to the brake.
Manufacturing activity fell in July and the Reserve Bank has trimmed its growth forecast. Global markets are unsettled, buffeted this week by the fallout from the embattled Turkish economy and the threat it poses to the European banking system.
The falling dollar indeed might be good news for farmers and other exporters but not for many households. Their budgets already have been severely squeezed by rising costs, particularly petrol prices which have reached a new peak in Auckland because of the regional 11.5c/litre fuel tax. The news can only worsen, not only for householders but for oil-dependent businesses, too, if the dollar keeps sliding.
It’s not only the price of petrol which is eroding household spending power. Add to that the pressure from hefty rises in insurance costs and property rates, not to mention weekly grocery bills, and it is not surprising that respondents in business confidence surveys have a rather different view of what’s happening in the real world than the PM or her senior ministers. Those respondents can see how quickly the purchasing power from wage increases or the expected gains from the government’s families package is being dissipated.
The government seems to be in a cocoon of its own making. It does not appear to understand how its policies are hitting hardest the very people it campaigned to help – the poor and middle-income earners.
Nurses (and soon teachers) won’t find their fatter pay packets taking them further and faster.
The PM and her ministers have talked not just of their plans to make the economy more “productive” but to do it in a sustainable way.
Yet business cannot discern any coherent plan to make that happen. At least two decisions taken by the government have been announced without any supporting cost-benefit exercise, notably the move to stop issuing any more permits for offshore oil and gas exploration and the more recent decision to ban the use of plastic shopping bags.
Critics say the plastic shopping bag ban will hit the poor the most. The drive to a net-zero carbon economy will do the same, if if it reduces the pace of GDP growth.
What the Labour-NZ First-Green coalition has achieved so far has only deepened uncertainty. When a company like Freightways, with an enviable record for lifting its profits year by year, says it is “cautiously optimistic” about the year ahead, others which have experienced leaner pickings might think it it is time to batten down the hatches.
In setting up reviews and working groups, the government in effect has blurred its own vision (whatever that may have been) for NZ’s future. It has opened up the prospect of radical change in many sectors but left business confused and uncertain about the country’s direction. The wider community is bewildered, too,
One thought on “Falling exchange rate is good for some, but the Govt’s supporters are feeling the squeeze”
Michael Reddell did a great post on the ludicrous cost of NZ meeting a net-carbon zero position:
‘But it is likely to take an awfully large amount of “feel good” to compensate for the lost opportunities – for rich and poor alike – of wilfully giving up 10 to 22 per cent of future GDP (on the government’s own numbers).’
That’s basically up to a quarter of our GDP squandered. No country can afford that without much misery: