Prime Minister Jacinda Ardern will almost certainly have earned a bounce upwards in her party’s polling after her mission in Europe, where, as a result of her “Captain’s Call”, New Zealand has accepted the terms of the EU free trade deal.
The outcome is positive for some sectors, though not for the dairy and meat producers. NZ’s negotiating team, led by the redoubtable Vangelis Vitalis, did a remarkable job in securing as much as they did, but the disappointment over the lack of any significant gains for the dairy and meat industries could have justified the government flagging it away.
If the plaudits for the government are somewhat muted, it’s on the home front that black clouds have been gathering.
Those may dull the homecoming for Ardern after she engages in more trade-related talks in Australia. The reports on the economy awaiting her are downbeat, if not chilling.
Take for example the latest ANZ Business Outlook and the Q2 Quarterly Survey of Business Opinion (QSBO). They display similar themes: activity indicators are weak; cost and pricing intentions are far too high, capacity constraints are acute (an inflation intensification story); employment intentions are faring a little better than most indicators.
The ANZ Bank’s team says that for broader economic momentum, it seems the only way from here is down.
“That’s not to say the economic fundamentals have suddenly broken; rather, the economy is running out of resource to grow (labour in particular). And while there’s bound to be an element of worry about the demand outlook too (given interest rates are on the rise and the housing market is in retreat), demand driven by a rapid increase in debt (both Government and household) was never going to be sustainable”.
They say in this environment, the only thing left for policy-makers to do is focus on withdrawing demand and boosting supply. Trying to boost growth by adding to demand will only exacerbate the inflation problem.
“For the RBNZ, we see nothing in these data to stand in the way of 50bp hikes in both July and August. The RBNZ needs to be convinced that inflation pressures are softening, and that’s not what these data are saying (yet).”
Back home, Deputy PM Grant Robertson, recovering from his Covid bout, can still see silver linings in the darkening clouds.
He takes pride in the latest set of Crown accounts, in which he detects a solid result, despite “challenging” international conditions. He reckons these reflect the government’s “careful management of the books”.
For the 11 months to the end of May, the Operating Balance before Gains and Losses (OBEGAL) deficit was $7.7 billion, $5.5 billion below the figure forecast in May’s Budget.
Core Crown expenses were $1.4 billion below forecast while core Crown tax revenue was three per cent above forecast.
The key drivers of this were higher than forecast corporate tax ($1.6 billion), net other individuals’ tax ($0.7 billion) and PAYE ($0.6 billion).
The Treasury anticipates that much of this improved result will be reflected in the books at the end of the financial year on June 30. Hence the OBEGAL deficit will be less than had been forecast at the time of the May Budget.
Net debt was 16.6 per cent of GDP, $4.3 billion higher than forecast. This is primarily driven by weaker market conditions affecting the financial portfolio held by the New Zealand SuperFund and ACC derivatives. The Treasury has previously noted that the new net debt measure would be more volatile than the previous measure.
Robertson takes satisfaction from portraying this level of debt as still one of the lowest levels in the OECD.
He adds just this cautionary riff to his tune:
“While results at the aggregate level remain solid, we know that for many New Zealand households and businesses they are finding it tough going at the moment”.
The problem is that “at the moment” could stretch far longer than any Labour politician anticipating the only poll that counts would like.