Business confidence is bound to falter when govt and RBNZ have differing economic outlooks

Government  ministers  are adamant  New Zealand’s  economic  fundamentals are solid,   unemployment  is at a  record low,  growth is  faster  than  in Australia,   and  the  surplus in  the government accounts and low debt present  further opportunities to strengthen the economy.

Yet,  across the road  from the Beehive,  the view from the  Reserve  Bank  seems  very different.

In August  the  RBNZ  slashed  the official cash rate to 1%  and talked of the prospect of another rate  cut in November — on  the  basis a lower official cash rate is necessary to continue to meet its employment and inflation objectives.

The  bank  pointed to low business confidence and dampened business investment in 2018 which had remained weak in mid-2019. If sentiment remained low, growth might not increase, it  said,  an anticipated  over the  medium term.

The  RBNZ  also contends  the risks    for  the  NZ  economy  are so great  that in in the interests  of  financial  stability, core capital ratios  for the   country’s  big trading  banks   have to be  raised.

Is it  any  surprise   the  contrasting    views  of   government ministers and  those of the  Reserve  Bank   have  fostered uncertainty which helps to push  down  business confidence?

Instead of stimulating  new investment,  the   climate  of  uncertainty  has seen  investment  plans  put on   hold.

Rather than  creating  the  certainty and  stability which  would   promote  the investment needed to put the  economy  on the road to rising growth  and  higher prosperity,  government  ministers  on one side of the road,  and  the  RBNZ    on the other  are  presenting   such  different versions  on the state of the economy  they  have  succeeded  in  putting  business  on  to the defensive — and  they have made   consumers  cautious.

Moreover, if  the banks have to hold more capital,  won’t there be  less to  invest?

While   Finance  Minister   Grant  Robertson  is telling  anyone   listening that   under  his  stewardship   NZ  is growing  faster   than  Australia,  the deputy    governor  of the  Reserve  Bank,  Geoff  Bascand, has been   spreading   the message  across  the  ditch    that  the  RBNZ  has  to  impose more onerous capital requirements on  trading  banks  in NZ   because  there  is greater level of economic risk here than in Australia.

Which is  odd,  given   the   banks   under the gun   in   NZ  are  those  which dominate   the  Australian   economy.

Bascand  told  his Sydney  audience

“ … the risks globally are high, and NZ is particularly vulnerable to external events. Our economy is quite small – less than a fifth of the size of the Australian economy, and just like Australia, NZ is heavily reliant on commodity exports and is very open to financial capital flows.

“Commodity price movements in world markets determine the value of our key exports, as well as the price we pay for our imports, particularly those that are fuel-related. Monetary policy moves by foreign central banks may generate unfavourable fluctuations in our exchange rates”.

He  argued   the RBNZ set  capital requirements

“ … according to the NZ specific risk environment— but we also acknowledge how we ‘stack up’ internationally, and why we may need a more capitalised banking system than those in other countries”.

 So  despite   NZ’s  “solid”  economic  fundamentals,  and a growth  rate higher than  Australia,  (as  ministers  tell  us)  the  RBNZ  is  convinced  the  “specific”  risk  environment  is   such that it  is being forced into  laying  down   far  more onerous  capital requirements   than the  Australian  authorities  require of  the same  trading banks.

Point of  Order  thinks it’s no wonder    NZ   business  finds  it  hard  to get a  fix  on  the direction the economy is  heading,  when the country’s  political and  economic masters are looking at  it, apparently through very different lens.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

He  argued   the RBNZ set  capital requirements “according to the NZ specific risk environment— but we also acknowledge how we ‘stack up’ internationally, and why we may need a more capitalised banking system than those in other countries”.

 

So  despite   NZ’s  “solid”  economic  fundamentals,  and a growth  rate higher than  Australia,  (as  ministers  tells  us)  the  RBNZ  is  convinced  the  “specific”  risk  environment  is   such that it  is being forced into  laying  down   far  more onerous  capital requirements   than the  Australian  authorities  require of  the same  trading banks.

Point of  Order  thinks it’s no wonder    NZ   business  finds  it  hard  to get a  fix  on  the direction the economy is  heading,  when the country’s  political and  economc masters are looking at  it, apparently through very different lens.