A warning against Covid-response inefficiency, business flab and cronyism – let’s see if the PM pays much heed

“Beware   the  bossy  state”,  blared the  cover  line of  “The Economist” last week.

But New Zealanders   tend  to like some  bossiness  in  their  leaders.  Look  at how  popular  Jacinda  Ardern has  been after calling  the  hard  shots during  the  Covid pandemic.

Even  now those  who  believe she has single-handedly saved  this  country  from  the  many deaths that have been recorded in countries like the  UK,  the  US and  Australia won’t  countenance  any  criticism of  her,   or  her  government.  Ardern  made  the  big calls, but did  it  with a  smile, and  a  “be  kind” message.

The  question is  whether   this  can  be  sustained  as NZ  battles   back to  something   approaching   normality.  And  if  anyone  believes  this will be  an  easy  battle  to  win,  they  have  only  to  survey the  problems  the  pandemic  is  leaving  in   its  wake.

The real impact of New Zealand’s economic response to Covid-19 was the headline in The Spinoff above an article in which Bernard Hickey argued:

“Contrary to many assumptions, New Zealand’s economic response to Covid was among the worst in the world in terms of widening wealth inequality and the wasteful use of taxpayer funds.”  

And more recently, another headline warned:

Inflationary pressures could push prices up 10% – Retail NZ

Market darlings falter but the rise of other stocks has lifted the NZX-50 to a new record

The  NZ  sharemarket bounded to a  new high on Wednesday, with the NZX-50 index surpassing  the previous  peak  to  climb above 12870.

Investors  are   not  exactly  dancing  in the  streets, although in  past eras they might have been.

But  there  seems  to be  a  clear conviction among investors  that  the  NZ economy  is  escaping from the  shackles of  the Covid-19  pandemic faster than  most others, and anyway, where else can funds  be  placed  for  a  decent  return (apart from  the  overheated  housing  sector)?

Strangely, too, the  market hit  its  new  peak  just  as the  gloss  had gone from the  stocks  which  had  enjoyed to that  point  the  status   of  market darlings, F&P  Healthcare  and  A2 Milk.

We can learn from Australia about becoming too reliant on trade with China

So  how is  NZ Inc  doing  in this pandemic?    OK, you  might  say.  Take  for  example  NZ’s  external  trade.  NZ  has  posted   its  biggest  external    trade surplus in 28 years as  Covid-19  led  to a sharp fall in imports.

For the  month of  October  there was a deficit of  $501m, just under  half  the  size of the deficit  the  previous October.

All up, international trade has proved  remarkably  resilient – a welcome boost for a  small importing economy like  NZ. And there  are signs  the  economy is strengthening,  says  ASB  economist Nat  Keall.

He said that on the same day the NZ sharemarket rose to a new record.

But despite the positive signals, exporters  can’t  rest  on their  laurels.  Indeed, fruit  exporters  are already under the  pump  as  they  face  shortages  of  workers  for  coming  crop  harvests.

Sorry, but we can’t find a financial whiz to assure us the short-term economic outlook is bright

It’s been a grim week for investors.  RNZ reported the local sharemarket continued to slide yesterday, because of anxiety about the coronavirus and the prospect of it sparking a global recession,  and the NZ dollar tumbled after the first case in this country was confirmed.

The market mayhem was induced by the global panic as news of more coronavirus cases, notably in Italy, raised concerns of the virus’s economic impact being much greater than previously expected.

The market started the week at a record high but fell every day and had lost almost 7 per cent by the end of trading on Friday.

The three main US indexes ended the week down 10% or more.

“A known unknown” is how one major company boss described the economic fallout of coronavirus to the BBC, which reported the markets have woken up to the disruption to the economic activity from coronavirus being wider, deeper and perhaps longer lasting than previously assumed.

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?

A bullish sharemarket contrasts with flagging business confidence

The New Zealand sharemarket’s top index hit a new record this week.

So given the slump in business confidence, is this just another outburst of irrational exuberance? Or do investors have a different take on the state of the economy than the business leaders who respond to confidence surveys?

The sharemarket has had a long bull run and some authorities think it is now overpriced. Yet those who have been predicting a downward correction are lonely prophets.

The paradox of sliding business confidence and rising sharemarket indices

Business confidence has been declining since November and – according to the latest ANZ Bank survey – a net 27% of businesses are pessimistic about the year ahead. ANZ chief economist Sharon Zollner thinks the economy may be “tiring”.

Investors in the NZ sharemarket seem to have a different view. The S&P/NZX50 index hit a new record this week, reaching 8899.52 at the close of business June 7. After a flat first quarter this year, the market has surged 6.5% in the weeks from April 1.

So what’s going on?