Businesses are losing confidence – here’s hoping world leaders don’t lose theirs

Is the next recession  on  its   way?  Government   ministers  have brushed  aside  reports of falling  business and   consumer  confidence. They  argue   the  economy  is  trucking  ahead on a  solid growth  path.

Ominously, though, investors sniffing the breeze  feel  a  chill   in the air:  the   sharemarket’s  top 50 index  has  slumped  7%  in the last  10  days.

And  the government’s own   action  in  raising  petrol  taxes  has been the trigger  for  consumers to  pull  back spending.  The latest OneNews Colmar Brunton poll   found   57%  of  respondents  had either  adjusted  their  spending patterns or  reduced their driving.

People also spent less on essential items like groceries and electricity.  Spending on non-essential items  dropped by 44%.  

PM Jacinda Ardern earlier this month contended New Zealanders are being  “fleeced”   at the  petrol  pump.  She  reckons  fuel taxes  are  not the   source  of the problem: she blames the oil companies for the margins they are   extracting.

Whether  New Zealanders go along with  her  on  that is  a moot  point. She  reacted  sharply  when it  was suggested a  regional  fuel  tax was  being sought  in  Wellington,  ruling  out  any  more  like  the  Auckland  10c a regional  tax  while  she’s  PM.

Still  to  come  are the  secondary  effects  of  petrol price increases, when  they  feed  through to  transport  costs  on essential  goods.

Observers  may say it’s  unfortunate for  the  government  that   at the  same time  as it   applied tax increases  on  fuel, the price  of  crude  oil  rose to  around  $US80  a barrel  (up  from  $US50 a barrel around a year ago).

That  on  top  of  the  fuel tax  rises  could have delivered  the killer  blow to  already  sagging  confidence,   as  measured in  business and consumer  surveys.

The timing coincides with  tremors in  international  markets,  sufficiently  strong for  London’s The Economist to devote  a  special  report last week to the  subject,  headed   darkly   “The  Next  Recession”.

It  warned that in  2007  financial  markets  were primed for a  massive  crisis, but  governments   were  able to draw  heavily on their monetary, fiscal and  diplomatic resources  to prevent the crisis  from destroying the  global economy.

“Today the  financial  dominoes  are not  set up  quite so precariously, but in many  ways the broader  economic and political  environment is far  more forbidding”.

 “The  Economist” ends  its 10-page  report:

“The global financial  system is  more prone to havoc  than  previously appreciated and its recession-fighting  tools  no longer pack a punch.  Economists and politicians  are clever  enough to  adapt  and respond to new  challenges. What is  unknown  is whether  world  leaders  are still confident  and committed  enough to averting  geopolitical  havoc to take the action so badly  needed”. 

 

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