If you are looking for the PM, try Napier – and for good measure she might have something to say

Buzz from the Beehive

We drew another blank, when we checked the Beehive website this morning for ministerial announcements, pronouncements or denouncements.  Nothing has been posted since January 16, when Damien O’Connor announced he was travelling to Europe this week to discuss the role of agricultural trade in climate change and food security, WTO reform and New Zealand agricultural innovation.

We last heard from the PM on December 31 when  she issued two statements – Frontline workers to receive COVID-19 Response Award and New Year honours recipients highlight what makes NZ unique.

This does not mean the PM has not at least thought about her job over the holiday period.

A bundle of media reports suggest she has been busy working on how best to get her team into shape for the general election later this year and polishing her policy programme to optimise its appeal to the public.

The PM will return to a country where the flagging economy is running out of the resources it needs to grow

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.

After the pandemic we must deal with global recession – but there will be corporate opportunities, too

New Zealand  businesses  which  found themselves looking into the abyss of a largely moribund economy  can  now  lift   their  vision  towards  revival,  as  the   government  signals  the  move  into  lockdown level  three.

To a  degree   the vision is still clouded:  one of  NZ’s  biggest   enterprises,  Fonterra,  has  warned  its farmer-suppliers  of the imminent global recession,  which  it  foresees   will  extend  deep  into  2021, while calling on  them  to  be  “cautious”   with    their on-farm   decisions.

Fonterra chairman John  Monaghan  says the global recession will impact people’s purchasing power and that will be reflected in prices for all products and services.

“The scale of the impact is impossible for economists to predict right now.”

Clearly,  it won’t be easy, nor speedy, to recover  from the  lockdown,  and the  impact of the pandemic.

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.

Businesses seem gloomy but health-sector companies are in good heart

The PM, Jacinda Ardern, received what her handlers would have perceived  as  unexpected  criticism  from the  media   after   she gave  a pre-budget speech to an Auckland business  audience.  One of those  in the  audience  was   said to  have   described   it  as  an   “ideological fairytale”;  others   apparently  were  disappointed   it had  “nothing for business”.   

Given   she  did list  as   two of the five priorities  in the budget as   being “creating opportunities for productive businesses, regions, iwi and others to transition to a sustainable and low-emissions economy; and supporting a thriving nation in the digital age through innovation, social and economic opportunities”,  the criticism itself  could be  regarded as  a    bit  “ideological”.

Surely   business  doesn’t  expect   government hand-outs,  even if  it  is labeled  a  “well-being”  budget?

But  there   seems  little   doubt    that   the   mood of  business  is downhearted   these  days.

Or is it  really? 

Southland is doing nicely, thank you – and vegans should approve the land-use changes

Despite what  business  confidence  surveys  say,  the  NZ  economy  is  plugging along   steadily and  city-dwellers   may  not  have noticed  how  well  the   farming  industries have been   doing.

ANZ economists, surveying  the  country’s  primary   industries  this week,  talked  of   “elevated  returns”   at  the  farm  (or orchard)  gate.

They  say global economic concerns are yet to be felt in the  regions, with commodity prices generally very strong at present. Export prices  for  dairy products have steadily increased with the GDT price index gaining 24% since early December,  and  the  ANZ team  is  forecasting a $6.40/kg milksolid  price for the current season and a $7.30kg/MS price for next season.

They   also  note  returns  for  export  lamb   have been   very favourable,  with China  now  the largest  market  for  NZ  lamb  and mutton  (though   they  say  a  disorderly  Brexit  could be   disruptive for  the  trade to  the UK and European  markets).

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?

Confusing views of the govt’s leaders show up among business people

Surely  that  can’t be  right?   Grant  Robertson  rated  ahead of  Jacinda  Ardern?

But there  it is  in   black and white:  Robertson  scores  3.62  out of  5   while  Ardern  gets  3.3  in  a    poll of   150 CEO’s.

This is the result in the  “Mood of the  Boardroom”, an annual  survey reported by the  New Zealand  Herald.

 Yet  earlier in the publication, a report states unequivocally:  “PM Jacinda Ardern is  seen  by many CEOs  as the standout performer in the Coalition  government”.

 Confused?

Check out what most influences business confidence – its (no surprise) government policy

Economist  Donal Curtin deserves our plaudits for an idea he threw out in August, suggesting on his blog that somebody ought to ask New Zealand businesses exactly what’s bugging them when they report low levels of business confidence.

We should thank the New Zealand Institute of Economic Research, too, for acknowledging it was a good idea and doing something about in the latest Quarterly Survey of Business Opinion.

The institute included a question in its survey to find what influences business sentiment.

The survey results are clearly awkward for the government, showing a further deterioration in business confidence. A net 28% of businesses expect economic conditions to worsen – the lowest level since March 2009.

It’s hard to find the policy beneath the platitudes in PM’s business speech

Fonterra last week cut its farmgate milk price forecast to $6.75 per kilogram of milk solids.  This probably wasn’t the kind of answer the government was looking for when the PM sought to pull NZ business out of its current funk.

The PM certainly got some favourable headlines in a media still obsessed both with her charm, motherhood, and gift for communication.

But it will take more than a Business Advisory Council to restore equanimity to the boardrooms where confidence has been eroded by the uncertainties induced by global trends, trade wars and unsettled commodity markets — but not least by the government itself with its so-called “reviews” and calls for “transformatory change”.

Change in taxes? Yes, these are being reviewed by Sir Michael Cullen (no great friend of business) and his panel.

Change in employment law? This is being reviewed by Jim Bolger (who was once a firm believer in the reforms of the 1980’s and 1990’s, but now thinks the “neoliberal experiment” has been a failure).

Climate change? Plenty of action there: the government’s consultative document modelling points to the prospect of the competitiveness of core parts of the tradables sector could be undermined and GDP cut by perhaps as much as 10 – 22%.

Adding to business uncertainty has been the government’s sudden ban on new offshore oil and gas exploration. As Point of Order noted in an earlier post, it blindsided the energy sector, which was not mollified at the time by Ardern’s glib insistence that the transition to a zero-carbon economy “must start somewhere” or her promise that no jobs would be lost.

Then there’s government’s negative attitude to mining, with Conservation Minister Eugenie Sage adamant there will be no more mining on conservation land.

So when the PM argues that NZ’s needs to transition from growth dominated by population increase and housing speculation, to build an economy genuinely productive, sustainable and inclusive, did she have anything concrete to offer beyond the platitude “we want to grow and share more fairly New Zealand’s prosperity” (and a Business Advisory Council)?

Commentator Michael Reddell found nothing in the speech about what the government proposes to do and how it believes the modest measures it does propose will deliver better outcomes.

Reddell went on:

“But by far the bigger issue, if the Prime Minister and the government are at all serious about the lines they ran, is ‘what do chief executives of businesses know about overall economic management, and the challenges of New Zealand’s longstanding productivity under-performance?’. In Paul Krugman’s words, a country is not a company”.

Former Finance Minister Ruth Richardson has a similar view: The primary responsibility for business success properly sits in the court of businesses.

And she makes a startling confession:  “I never thought I would say three cheers for Winston Peters!”

In a recent speech on Being Globally Great from a Canterbury Base (reproduced in Kiwiblog), she said:

“This is an accidental government formed on the fly and governing on the fly.  In the absence of coherently thought through policies, every significant initiative is parked with a working group or the hundreds of other names conjured up for the contracting out of government.  Eventually the working groups eagle will have to land – do we really want to revert to the failed industrial regime of old, do we really want to tax the hell out of the very thing we so patently lack, capital, do we want to choke agricultural production with a rigid ‘ all gases are the same’ regime for tackling climate change?”

Richardson believes business is right to be very afraid. She speculates on what might be the rescue remedies.

“The primary government may come to their senses – or the coalition partners may start jerking them around. Think the curtailment of the 90 day rule repeal, no water taxes, capital taxes apparently off the table and the three strikes repeal on hold.

“I never thought I would say three cheers for Winston Peters! The welter of working group reports may be DOA. The adults in the room may be successful in urging course correction”.