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”.
Point of Order 