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.