NZ engine spluttering ?

[skinny]

The gloom prevalent in Feburary to mid-March seems to have lifted with most of the NZX performing well so far through April :D

Is it a false dawn or has this thing got legs ?


Some recent opinions on the optimistic side for NZ inc:

http://www.stuff.co.nz/stuff/0,2106,2870377a1865,00.html

http://nbr.infometrics.co.nz/column.php?id=900

http://download.hsbc.com.au/markets/nzen/NZ_GDP_4Q03.pdf

[belgarion]

Good topic Skinny !!

I'm of the opinion that NZ is actually well placed. Business confidence surveys relate to how who is being sampled ... Most I don't rate ... So I pay little heed. Looking forward ...

US i-rates will rise, Bush will get the boot and newby will look to balance budgets and wind back disasterous foriegn policies ... both will help USD stabilise and NZD will once again return to average ... (Note 'average' ... NZ economy is well placed and should enter a long term up currency trend.)

Commodity prices are good and should continue to firm. Eventual and continuing western world reduction of subsidies to primary sector (especially EC dropping production related payouts ... where is the US on this !!!) will improve NZ's position.

Billions of Chinese and Asians will suddenly develop a taste for the 'good life' ... including NZ wine, NZ mutton, NZ holidays, etc. etc.

Also, Govt is running a surplus. Time for a gentle tax cut to the basic rate (benefitting everyone) coupled with a gentle increase in RBNZ i-rates to dampen inflationary effect. Cool.

On the down side ... employment is a problem, and one I blame dumb business leaders for. Most NZ companies, especially the big ones!, could actually reduce staff by being smarter. That said, I think they'll cotton on and re-structuring and internal effeciency will suddenly rate a mention and they will re-act to it faster than larger overseas players have done. Should be some good 'wage inflation' in this process too which help people adjust to current debt levels.

Me? Looking at the doom and gloom merchants getting it wrong again in NZ and NZ growth continuing to suprise ... long run? ... 4% plus will be the norm. Fly in the ointment could be more of Brash's overly conservative (and heavy handed) approaches to ego-based control of the economy should he get the riegns again.

[skinny]

I've heard 4% long-run growth for NZ whispered as a possibility by some fairly level-headed NZ policy makers too, especially if agricultural liberalisation works out well for NZ and it can REALLY exploit its comparative advantage in this.

If this does materialise then the "bubble" in the property markets won't look so frothy after all ;)

Before we get ahead of ourselves though the missing ingredient, as you identify, is decent labour and multi-factor productivity growth. I've no doubt that this is increasing at the moment now that most of the less-skilled labour has been absored into the workforce and that NZ businesses are turning to importing capital goods (at record levels) to boost the efficiency of their productive capacities.

The big stumbling block I worry about in all this though is infastructure [V] It will be hard for NZ to realise the productivity gains it should given its well-educated workforce operating under fairly liberal market conditions while it still has a second-world telecommunications network, 3rd world roads, and rail systems that don't bear thinking about [xx(]

More likely we'll get solid growth of 3-3.5% p.a. Enough to lift standards of living c/f a lot of the OECD, but not against the continent next door.

[skinny]

The politically inspired costings for transmission gully is exactly the sort of crap that holds NZ back from achieving 4% long-term growth.

http://www.stuff.co.nz/stuff/0,2106,2877390a10,00.html

Its blindingly obvious SH1 north of Wellington is capping growth in the whole region, not to mention its an almost criminal menace to public safety !

[kittydashwood]

Hey at least you own a nice marina

[easy money]

dear belgarion a gentle tax cut from this labour govt..not a chance still....the economy is coming along quite nicely

[Capitalist]

quote:Originally posted by skinny

The gloom prevalent in Feburary to mid-March seems to have lifted with most of the NZX performing well so far through April :D

Is it a false dawn or has this thing got legs ?


Some recent opinions on the optimistic side for NZ inc:

http://www.stuff.co.nz/stuff/0,2106,2870377a1865,00.html

http://nbr.infometrics.co.nz/column.php?id=900

http://download.hsbc.com.au/markets/nzen/NZ_GDP_4Q03.pd



I said months ago, when Gareth Morgan and some here were bleating about defensive stocks, that there is no recession in New Zealand- as the song goes. There will be no implosion of the property market either, except in sub-standard apartments.Gareth Morgan has been consistently wrong with his gloomy predictions for over 2 years now. Better to get a ouija board.

[boring]

Interesting article on Kiwi attitudes to economic growth:

http://www.stuff.co.nz/stuff/0,2106,2878649a10,00.html

Most of it is +ve, but what really burns me up is the Kiwi attitude that: "Economic reforms of past decades have turned off a lot of Kiwis. They see economic growth coming at too high a price or as way beyond their capability to influence,"

I hear and see this in the media all the time, esp with ref to the evil Labour-led gov during the Rogernomics era. Rogernomics = evil. I wish people would "wake-up", because most of the economic reforms made over the past 2 decades has been the basic cornerstone of our economy. The floating NZD, Reserve Bank Act, way we prepare and publish govt accounts, elimination of farming subsidies ... we still have these today and we wouldn't dream of going back would we ??

Only point of contention would have been Gov. asset sales. Maybe that went too far, but I still believe Gov should govern and run infrastructure, but not be in business. Granted, elimination of farming subs. back then was painful, but look where we are now, one of the most productive agricultural ind. in the world (esp compared to Europe).

I think we need to get over what happened in 1980 - mid 1990s. Why can't we have our cake and eat it ? By that I mean why can't be have topline econ. growth, sustainable industries and good quality of life ? Surely they are not mutually exclusive ?

I'll get off my soapbox now.

[pajama]

at the risk of offending some i will state that boring is 100% correct. there is so much rubbish in media that the rodgernomics was bad and evil that people actually belive it. were it not for the hard decisions that were made some 20yrs ago now we would be far far worse off than today. does anyone remember 66% tax rates (would you bother), import restrictions, foreign exchange restrictions etc. compare setting up a phone line today with competition to what it was like pre 1984. the douglas/prebble haters would still be driving 1976 cortinas costing them $10k rather than a 4yr jap import for half the money and 10x the features. a lot of the progress made that helengrad has taking credit for (and to be fair previous national govts) was simply a function of the very sound foundation laid back in 1984. people do not like change, i accept that, however it is reality and must continue if we are to have any chance of prosperity.

[belgarion]

pajama,

'Rogernomics' was simply the 'unwinding' of far too many years of muldoonism. It's a funny thing that so-called 'free-market' political parties like National (and the US repugs) that are supposed to be 'free market' political parties frequently implement policies that the reverse. That's politics for you.

The biggest single risk looking forward for NZ is the size of the US deficit and the rate of China's growth. Put the two together and we have a credit crunch like the world has not seen yet.

Two massive economies, one looking to borrow heavily with unsound fundimentals (borrowing to balance massive debt spending), heavily in debt but a good track record and on the other hand one looking borrow to fund growth, with little track record but good fundimental.

NZ is stuck on the outside. We could see punishing i-rates in NZ if we want to attrack forien capital or very low i-rates if we want NZ capital ... (The latter won't happen as we dont have sufficient critical mass.)

Pajama what about the effective tax rates of 80% plus some New Zealanders are paying today. And when you take all the co payments into account, (like school fees university fees doctors fees ETC) the 66% tax rate was a hell of a lot cheaper for most people. You are only comparing the headline rate the only bigger disaster than Rogernomics was Ruthanomics. The gradual unwinding of some of Ruthanomics worst excesses is what has put the NZ economy in the improved state it is in now.

[bongo66]

NZs engine has sadly never got started. A measly 3-4% growth while the US$ has almost been at record lows and commodity prices at all time highs. Pathetic.

High taxes are holding us back.

Give it back ya bastards!!

B

[skinny]

Hey I agree with Bongo ! And almost all the other punters too, though my take on the Rogernomics is that opposition to it is often generational, the oldies being more nostalgic about the good old days pre-1970 when NZ really was rich, sheltered and safe.

One thing for sure is that the policy wonks can't explain why NZ has not done better than it has despite having world class regulatory and macro environments....and the politicians just grab at straws [:o)]

Living in Europe where the infastructure is amazing gets me thinking its important as Europe does OK despite high taxes, terrible regulations, and over-bloated government. Its also the most noticeable difference on the ground between NZ and Australia.

Just a hunch !

[star]

Bongo & Skinny

I can not understand why New Zealand is getting behind among OECD countries either.

Government deregulated and privatised public infrastructure in 1880s (Telecom, Trans Rail, etc), which lead private corporates only look after their own interests and shareholders. Their decision of restructure, down sizing and profit distribution could conflict with the New Zealand public.

Poor public transporation system can hold New Zealand back. In one way, New Zealand needs more people, so that buinsess can acheive better economies of scale and efficiency. In another way, we can not accomodate more people because our public facility is over stretched. Take Auckland for example, the Train and Bus net work is so poor, everyone has to drive a car to go to school or work. With only 1.3 million people in such a big city, the traffic jam in peak hours is horrendous. How can we achieve high growth in mid/long term with no proper public transportation? Should the Government leave the responsibilies of this country's long term development totally to the hands of private companies?

Another concern I have is corporates all move to Auckland, no government policy or grant to guide/promote businesses to equally spread in other cities, how can the small cities get enough capital to develop and the people there get employment opportunites?

[skinny]

Star - private public partnerships looks the way to go on the road issue IMHO. Its the norm in parts of Europe (esp. France) and in another long skinny country that has big distances between the cities & similarly challenging geography...this country is only 1/2 as rich as NZ but has far better highways and its beginning to kick our butts in world markets. Its Chile ! Downside ? PPS require user charges to work & its going to be an uphill battle to convince kiwis that their roads are not "free".

In the short-term agree with Cap that the economists made the wrong calls. One exception was John Edwards at HSBC who always maintained that NZ would sail through and is calling for a rise in interest rates soon. The RB could come take away the punch bowl yet !!

[boring]

At last, an official body finally crediting some of the good work done by the past Labour government under the stewardship of Roger Douglas:

"Finance Minister Michael Cullen is refusing to comment on a Treasury report crediting Rogernomics for New Zealand's improved economic performance."

http://www.stuff.co.nz/stuff/0,2106,2891269a13,00.html

As alluded in my earlier post, maybe people can start to grow up and not automatically associate evil with "Rogernomics" and realise that it is possibly the "father" of our modern economy we enjoy today...

...that is until the current Labour government f*%ks it all up ....

[skinny]

Boring - had a little to do with that ;)

For anyone really interested in the issues its worth reading the full Treasury report - its at a fairly non-technical level so the usual maths and jargon economists love is kept to a minimum.

http://www.treasury.govt.nz/release/economicgrowth/nzeg-app-apr04.pdf

Lots of interesting cross-country comparisons of labour and multi-factor productivity growth (Belgarion) which supports the assertion I've seen posted here that NZ really needs to lift its capital investment rates.

Also lays out the policy areas the NZ Treasury see as necessary to move NZ back up the OECD ladder. The most juicy of which is the suggestion to move to a low flat tax rate for all [:p]

[Cooper]

I think the biggest problem at the moment is the media... they tend to focus on the short term negatives, ignoring the opportunity to step back and take a long term view of the economy. It's hard to be excited about the good performance of the NZX, the fact that we've rode through a global recession with flying colours and that we have a number of export opportunities presenting themselves (ie China, increased demand from a global economy supposedly coming out of a slump) when the NZX media is taking the intelligent step of focussing on the goings on of Mr Beckham's libido and an overly woolly sheep, as well as the easy pickings of the foreshore debate, racial tension etc etc ad nauseum. I would be depressed too if I didn't have a look outside the NZ media. Perhaps they need some competition to keep them sharp?

[Cooper]

I think we need to have a look at the sticks and carrots inherent in our current savings policy skinny... sure Mr Cullen has his pet savings plan to help us in our retirement but what about rewarding the rest of the country to save? Maybe RWT cuts before income tax cuts?

[stormrose]

Duude that sheep even made BBC World news.

[skinny]

LOL, I saw it on CNN here. My wife who isn't a kiwi gave me heaps !

[Cooper]

Better him than Don Brash I think!! Friends currently in England said that Mr. Brash was portrayed as NZ's answer to Pauline Hansen in the UK media.... maybe shrek is a better representative?

[skinny]

For those with a fetish for fiscal accounts this years budget surplus is truly staggering at 5.6 per cent of GDP. Some of this just reflects NZ growth is running above trend, but even cyclically adjusted the surplus is probably somewhere around 3 per cent.

http://www.infometrics.co.nz/article.asp?id=2898

So the big question is how will the dosh be used with Labour lagging in the polls [?]
Me thinks they'll be tempted to throw is something for everyone - that means tax cuts of some sort for sure !

[fundir]

Skinny,

No tax cuts will be forthcoming. Cullen has already alluded to the various bribes that are going to be used to make you forget that he has taken more of your money off you that he needs.

[skinny]

Well we'll see I guess - there must be pressure on Cullen now they know the true rosiness of the fiscal accounts and their lagging state in the polls. Cullen could also save face by shifting the income brakets rather than changing the marginal rates, arguing that this makes sense purely from an income creep perspective.

Agree that whatever the case is they are taking too much money from the public !

[skinny]

Well I promised not to get back into discussing macro but this is too big - simply incredible March quarter GDP numbers ! No sign of the NZ engine spluttering !!

http://www.stuff.co.nz/stuff/0,2106,2952828a10,00.html

To put it in perspective the pace of growth in the March quarter was faster than anything that Australia has managed over the past few years and its a little stronger than the best growth the US has had in its economic recovery [8D]
Now, in part the strong number may be due to NZ growth being more volatile on a quarter-to-quarter basis (i.e. growth may be quite weak for the June quarter) but even so I sit here monitoring Euro growth and its exciting when you get a 0.2% increase for the major economies [:o)]

On the +ve side the increase suggests that NZ corporate earnings will be very good again to the year ended June - perhaps justifying the broad based share price rally on the NZX this year and the moderately high p/e ratios we're seeing on average.

On the -ve side it will certainly lead the pundits to think the tightening cycle will be stronger and raises the risk of a sharper correction. Interesting times.

[Major von Tempsky]

The problem is the media have got it right out of context and Bollard will probably do the same.
Ok, so there was a quarterly economic growth of 2.3%.
But what was the year to date growth?
Answer, a miserable 3.6%.
We need a consistent 4% plus to compete with Australia and winch ourselves back into the top half of the OECD. Other countries are managing 4% + economicgrowth.

We have the position of retail sales that are starting to stagnate and a cooling off housing market and rapidly decining immigration but this one-off figure will cause Bollard to panic again and slam on the brakes further so we remain mired in mediocrity.

The only way to consistent sustained growth is tax cuts to a low overall flat rates such as successful economies overseas have, deregulation, abolition of the RMA and rolling back of all the extra red tape put in place by this government such as the ECA.

[Capitalist]

Yes, those figures were rather higher than expected! I wonder what paranoid doomsday scenario will be trotted out next week. The economy still rocks, no doubt about it, despite the hubris coming from some quarters. Yeah Tempsky, why are blowhards like Bollard going on about 'corrections'.Why should there be a 'correction'? The GDP growth isn't high compared to OECD average.Immigration is the thing to watch IMO, and that is still well within the growth range and will start increasing again later this year.

Which brings me to another rant. Never mind that since Jan 1 1.5 million jobs have been created in the USA, and economists project that number may double by year's end. Americans' per-capita income is up. The Treasury Department reports an increase in tax revenues, which shrank the budget deficit by $100 million in the first quarter - far, far ahead of projections. When Sir Alan raises rates off laughable levels EVERYONE OUT OF THE WATER!! we will have RAMPANT INFLATION and WE'RE ALL GONNA DIE!!!

But wait--there's more...gas prices are going down and the US could be awash with oil by September. But let's buy GOLD and repair to a cave, things are going so BADLY. That is if we all don't GLOW IN THE DARK from a nuclear blast first.

Meanwhile the evangelical followers of doom await a UFO to take them to the realm in which they belong. Proof that some people should not have moved beyond the abacus.

[Gryffyn]

MVT - much as I used to want a tax cut, overseas examples do not as you state bear out a direct correlation between flat tax rates and economic productivity.

We certainly don't need to abolish the RMA but it does need a bloody good overhaul now its been in a while and we can see the problems. That alone would spur some economic growth.

[Gryffyn]

Cap - I think you are using hubris in the wrong context! However, I think you are correct in maintaining your view that things aren't going to collapse at all. Plenty of positives and the US has shown in the past how it can recover from debt etc into a big boom as per post Reagan.

Immigration is quite low in fact compared to recent levels and overall targets - nice to know the govt as that tap available if required.