Minister of Finance is ready to change gear – but he didn’t signal to what effect

Finance Minister  Grant Robertson was bullish in telling the party  faithful about the state of the economy at the   Labour Party’s  annual  conference in Dunedin earlier this  month.

One year after the election of the Ardern government’s  the fundamentals of the economy were strong, he said.

“We have just had the strongest quarter of economic growth in two years. We have a sustainable surplus that is allowing us to invest in infrastructure and keep debt under control”.

And  he rounded  off  his  gung-ho report of what the coalition has achieved :

“It is time to change gear on our economy”.

The   question  now  is did  he  mean changing  up to a  higher gear?  Or was he reckoning on dropping it down  one?

We ask because not  all the economic  portents  are  as  bright as they  might have seemed   only a  few  weeks  ago.

ANZ Bank  economists  on  Monday  reported  conditions for business investment are challenging, despite very apparent capacity constraints.

“We expect to see softness in investment (excluding residential buildings) in the short term, given current challenges.  These include profit squeeze, low confidence, reduced risk tolerance, and credit constraints. …

“We anticipate that below-average growth will continue, in light of persistent headwinds. This reinforces our view that it may be difficult for the economy to grow above trend”.

The ANZ  prognosis reinforces other  signals the  economy  could  be in  for a  bumpy  ride.  Business   surveys for  some time   have  been pointing to declining levels of  confidence,  but these tended  to be  discounted at the time  by  ministers, despite  growing global  uncertainty, volatile  international  markets and  intense  trade disputes.

Retail  sales  in  the  September  quarter  stalled,  house  prices in  Auckland  in the  year to   October fell,  global  dairy prices  have been on a downward trend  to the point   where dairy farmers  fear  another cut  in  the projected  milk payout.

ASB  economist Mark  Smith  said the  retail sales outcome for the September  quarter  had put some downside  risk  on its forecast  of  an 0.6%  pick-up in quarter-on-quarter economic growth for those  three months.

Spending on motor vehicles  and parts  fell 1.3%  to $3.33bn  in the  quarter.

The   high-flying  sharemarket has had its  wings  clipped:  the  S&P/NZX50 index  has fallen nearly  8%    from  its  September  peak, not helped  by  an  precipitous decline  in  Fletcher  Building,  which at  one time  was regarded  as a  leader  in the  NZ  business  world.  Its share price  has  fallen  nearly  30%  over the  past  12 months,  following   massive construction  losses.

It’s not  the only company  experiencing  difficulties  in the building sector.

The  bigger   risk    for the  government,  which has  staked its reputation  on solving the  “housing  crisis” ,  may  lie  in  the  problems  within the  building  sector.   The industry is  faced   with  the  rising  cost  of  labour  as  well as  of materials.

At  the  same  time  the  trend  in   falling  house  prices  could accelerate.

Another  of the  major listed   companies,  Fonterra , like  Fletcher  Building has  had a  rough  passage,   denting  confidence   in  what   is  one of the  main elements in the  export sector.

So when   Grant  Robertson  contends   the  government  is building an economy “that is more productive, more sustainable and more inclusive”,  his optimism  is  not   necessarily   matched   by everyone.

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