Falling exchange rate is good for some, but the Govt’s supporters are feeling the squeeze

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

  1. 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:



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