Investment intentions highest since 1975

April 9, 2014

The NZIER has more good news on the economic front:

Recovery surges ahead as firms remain the most confident in 20 years

Economic activity strengthened in early 2014, according to the NZIER’s March 2014 quarter Quarterly Survey of Business Opinion (QSBO). Trading activity, which closely mirrors GDP growth, accelerated to the fastest pace since December 2003 – when annual GDP growth was near 4.5%.

“While we do not expect economic growth to hit such heady rates in the current business cycle, as credit conditions are very different now, our latest survey paints a clear picture: the recovery is strengthening”, said Shamubeel Eaqub, Principal Economist at NZIER.

Firms are translating optimism into jobs and investment

Business confidence held steady in the March quarter, and remains at the highest level since mid-1994. Optimism and activity is being realised into hiring, investment, increasing margins and profits. Intentions to invest in building, in particular, are soaring and are at the highest level since records began in 1975. . . 

In 1975 New Zealand was highly regulated, protected and subsidised.

Thanks to what the left still deride as the failed policies of the 80s and 90s businesses now stand or fall on their own merits rather than political patronage.

Soaring confidence is based on the strong foundation of performance and not the shaky one of political whim as it was in those bad old days.


Growth forecast 3% – NZIER

March 1, 2014

The New Zealand Institute of Economic Research is forecasting economic growth of 3%, the best since 2007.

Strong growth this year will come from the resumption of ‘normal’ spending and investment patterns and surging Canterbury reconstruction. The reconstruction will contribute one-third of GDP growth this year (Figure 1). . .

The institute expects interest rates to rise and sees a risk in large policy shifts:

The general election later in 2014 will see a plethora of policy announcements from political parties, tempted by looming fiscal surpluses. Spending promises should be seen in the context of steeply climbing fiscal pressures associated with ageing, and the inevitable trade-offs that this will present. We do not expect the election to have any immediate impact on economic growth, but any large shifts in policy will shape future economic growth.

National’s policies have got us through the recession, back on track to surplus and growth.

The return to high taxing, high spending, anti-growth policies the opposition are promising would put that all at risk.


Confidence up, south leads

April 9, 2013

Business confidence is at its strongest since June 2007, when the domestic economy was starting to turn down ahead of the global financial crisis in 2008, according to the latest Quarterly Survey of Business Opinion from the New Zealand Institute of Economic Research.

The March quarter survey shows economic recovery broadening beyond Auckland and Christchurch, and no apparent impact from a string of corporate restructuring announcements in the first three months of the year, and the collapse of the Mainzeal construction group.

A net 23 percent of firms expect better trading conditions in the next quarter, up from 20 percent in the previous quarter, while a net 32 percent firms are optimistic in March, seasonally adjusted, compared with 19 percent previously. . .

A Grant Thornton International Business Report (IBR) shows southern businesses are more confident than those in the north.

. . . 16.8% of South Islanders are very optimistic about the economy in the next 12 months compared with 8.10% of the North Island.

Simon Carey, partner, Grant Thornton New Zealand Ltd, said that the gap narrows when talking about optimism overall with 65.2% of South Islanders being optimistic compared with 61.6% of North Islanders.

“These optimism figures are supported throughout the survey with South Island firms expecting to generate more revenue than North Island companies (68.4% to 66.7%), generate better selling prices (46.3% to 38.4%), employ more staff (44.2% to 34.3%), invest in plant and machinery (62.1% to 54.5%) and pay higher wages with 80% looking to increase salaries in line with inflation and above compared with 72.7% for the North Island. At the generous end, 22.1% of South Island firms will increase salaries at levels above inflation compared with 19.2% for the North Island.

 “Optimism in the South Island has been trending ahead of the north for some time as evidenced by the research which revealed that 45.3% of South Island firms employed extra staff in 2012 compared with 29.3% for the north. These employment figures were further reinforced by the fact 25.3% of North Island firms decreased their staff in 2012 compared with 16.8% for the south.” . .
Confidence is important not just for the businesses but for the wider economy. The more positive a business is, the more likely it is to increase investment and take on more staff.
The global outlook is still uncertain but these reports reflect the positive view the IMF has of our economy.

Recovery at last?

January 16, 2013

Economic activity in the December quarter  surged to the best level since mid-2007 according to the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion.

Businesses are more optimistic (+19% from -1%, seasonally adjusted). The trading activity indicator for the December quarter also surged to the best level since mid-2007 (+8% from -4%, seasonally adjusted). This suggests annual GDP growth for 2012 will be above 2%.

“There are encouraging signs of a strengthening economic recovery. The latest bounce is concentrated in Auckland, and Canterbury to a lesser extent,” said Shamubeel Eaqub, Principal Economist at NZIER.

Subdued labour market

The latest pickup is not yet flowing through to the labour market. New hiring remains subdued and labour is getting a little easier to find outside of Canterbury. This is surprising as a recovery in activity tends to be accompanied by more jobs and increasing competition for labour that raises wages. This part of the recovery remains absent. It may be explained by reduced working hours during the recession, which are now returning to more normal levels, rather than through increased hiring.

Investment intentions, while positive, are also low compared to what we normally see in a recovery phase.

Little inflation

Capacity pressures are intense in Canterbury, but there is little pressure in the rest of the country. Firms do not intend to raise prices much. Consumer price inflation will remain low. Margins remain under pressure, but profits are beginning to lift on the back of better sales volumes.

RBNZ to hold interest rates steady

The RBNZ will keep interest rates on hold for some time. The QSBO shows the beginnings of a recovery, but still very low inflation.

nzier 2

One quarter does not a full recovery make but it is a long awaited sign of improvement.

The Christchurch rebuild is having a positive impact further afield than Canterbury.

Building tradespeople I’ve spoken to in Oamaru in the last week say they were busy at the end of the year and busier still this year.


Water is the key

July 25, 2011

Federated Farmers’ new president Bruce Wills says water is the key to both economic growth and environmental enhancement:

Water is to New Zealand what black coal is to Australian exports.  It’s the true backbone.

The challenge for us as the agricultural sector, from farm to processing plant, is to state the environmental case.   If we do not put the environmental case alongside the business case, the regulatory brakes will come on at the behest of the wider community. 

This is our call to step up.

It’s no good for us to have access to investment cash, willing investors and a world wanting our exports, if schemes get knocked back in the Environment Court or by the Environmental Protection Agency.

Half the game is to meet limits around water quantity. In this arena, rural water infrastructure can deliver positive wins for the environment, one example being minimum ecological flows while delivering reliable water to primary producers.

Native fish and water fowl cannot inhabit rivers that dry up over summer.

But the other half of the game will be to meet limits around water quality.  This is where the real challenge comes.

Will increased production from irrigated land inexorably drive increased leaching? Can we secure environmental integrity alongside economic growth? These are tough questions being asked right now let alone what will come.

In the next four decades, we could easily increase the amount of people we can feed some 2.5 times.  From 20 million to 50 million people plus.  We have immense opportunities to export agricultural services but none of these things matter, unless we can take our communities with us.

The world is short of food, many areas in New Zealand have the potential to produce more providing they can get reliable water.

The challenge is to convince those who might oppose development, that irrigation and the increased production it enables won’t come at the expense of the environment.

Our district has been transformed by irrigation.

Instead of playing catch-up between droughts, farmers have been able to budget on reliable production under irrigation. Rural communities have had a population boost as new jobs have been created. Soils which would have blown away in droughts, have been anchored down by pasture thanks to irrigation.

As well, independently audited environmental farm plans, ensure the protection and enhancement of land and waterways.

The NZIER looked at “The economic impact of increased irrigation” last November, estimating the economic benefits for ‘NZ Inc’of 14 schemes under development.

These 14 schemes will deliver an irrigated area of 350,000 hectares, 270,000 hectares being in Canterbury. 

By 2026, these 14 schemes will deliver extra production worth $2 billion a year at the farm gate and almost $4 billion in exports.  This, by the way, is 2010 dollars too.

This is a significant increase on the $23 billion in primary exports from 2008/9Off-farm infrastructure costs with water storage are relatively modest compared to the real gains in agricultural output. 

Water storage offers bangs for modest bucks.  The 2011 National Infrastructure Plan goes further echoing what Federated Farmers has said for years.  Water is our unique competitive advantage and is fundamental to economic growth. 

The economic and social benefits are obvious.

The challenge is to provide the evidence that rather than coming at an environmental cost, irrigation can protect and enhance land and waterways and provide enhanced habitats for wildlife.


Upside to high $

June 1, 2011

The New Zealand dollar hit a post-float high of  82.62 US cents yesterday.

That makes exports traded in US currency more expensive but it also makes imports cheaper and the NZIER says it will help keep inflation down.

Inflationary pressures are building because businesses have seen their margins slimmed down and will want to recoup some ground when the economy picks up pace – likely to begin in 2012 as the rebuild of Christchurch gains pace, according to the institute Quarterly Predictions report.

“The RBNZ will need to raise rates next year towards 4% to offset these inflationary pressures,” NZIER principal economist Shamubeel Eaqub said in a statement. “A high NZD is helping to keep a lid on inflation for now. We expect the NZD to remain elevated for some time,” he said.

 Beef + Lamb New Zealand’s (B+LNZ) Economic Service’s report on movements in sheep and beef input prices showed a 4.1% increase in the year to the end of March this year, in contrast to a 2.9% decrease the previous year.

The increase has been driven by the price of fertiliser, fuel and increases in banking interest rates, says B+LNZ Economic Service Executive Director, Rob Davison.

 “The price rises for fertiliser and interest have a big impact given they are the largest areas of expenditure on sheep and beef farms.

If the higher dollar helps keep the price of fertiliser down and keeps a rein on inflation which in turn reduces the need for interest rate rises it will compensate for the currency’s impact on export prices.

Normally when the dollar is high farmers complain. There’s hardly been a whimper this time, and nor should there be. Commodity prices are still holding up and the higher dollar takes the pressure off the price of inputs like fuel, fertiliser and machinery.

The Fieldays open in a couple of weeks. They’re a barometer for farming confidence and exhibitors will be expecting to make good sales.


Dairying doing it for NZ

December 9, 2010

It’s easy to see the positive social and economic impact dairying makes in North Otago, there is now proof of how the wealth generated from milk benefits the whole country.

An independent report by the New Zealand Institute of Economic Research, released today, shows money from milk flows right through the economy, starting at the farm gate and moving out to rural and urban communities.

The report to Fonterra and DairyNZ shows:-

  • Dairy provides 26% of New Zealand’s exports.
  • A $1 rise in Fonterra’s payout makes every New Zealander nearly $300 better off.
  • Dairy farmers spent around 50c in every dollar they received on locally produced goods and services.
  • Every tonne of dairy exports helps reduce the current account deficit, bringing down interest rates and reducing mortgage payments for homeowners.
  • Dairying employs 35,000 workers directly and a further 10,000 contractors.

Fonterra CEO Andrew Ferrier said today the report, commissioned by Fonterra and DairyNZ, will enable New Zealanders to better understand that when dairy does well, New Zealand does well.

“Most people understand dairy is a key export industry. Now they can understand what it means for them as the report accurately quantifies, for the first time, the tangible benefits to both rural and urban communities,” said Mr Ferrier.

An increase of $1 to Fonterra’s payout boost real incomes by about $270 for every person in New Zealand, showing everyone benefits when the company does well.

“Of the $7.5 billion farmers received in 2009, $3.6 billion was spent on domestically produced goods, including fertiliser, feed, agricultural services and financial services.

“There is no doubt that dairy has helped us out of the recession and the benefits extend well beyond the farm gate.  Export growth from the dairy sector has helped narrow the current account deficit and that helps everyone through lower interest rates on mortgages and other borrowings.”

NZIER Deputy Chief Executive, John Ballingall, said: “Our modelling shows that the dairy sector has delivered significant and ongoing benefits to the New Zealand economy.”

“Its influence extends well beyond its direct impacts in dairying areas, with the sector closely intertwined with the rest of the economy. That includes the jobs it delivers, the income that these workers earn, its links to supply firms, the effects of rural economic growth on urban centres and the tax revenue it provides to fund public services.

“The sector’s strength has been very evident as New Zealand recovers from the global financial crisis and domestic recession. Given anaemic domestic demand, the export side of the economy has been relied on to generate economic growth and dairy has made a significant contribution.”

DairyNZ Chief Executive, Dr Tim Mackle, said that last year dairying kept 35,000 people directly in work. “Our contribution to jobs is like having a city the size of Gisborne all working in the dairy industry. Urban centres also get a healthy share of indirect employment as they provide essential goods and services that are needed to produce dairy products.”

Dr Mackle said the NZIER report shows dairy accounts for 26 per cent of New Zealand’s total exports and it is looking to grow its contribution to the country.

“We’ve got a good track record of supporting regional growth, which this report shows, and we want to continue this trend. The challenge for our industry will be in how we achieve this growth in a sustainable way,” said Dr Mackle.

Highlights of  dairying’s contribution to the regions, based on 2009 figures,  include:

Waikato

  • Regional dairy production was worth $2.4 billion in 2009 (Matamata-Piako $552m, Waikato district $390m, Waipa $361, South Waikato $263m, Hauraki $196m)
  • More than 8,000 employed in local dairy industry

Bay of Plenty 

  • Regional dairy production was worth $605 million in 2009
  • Dairy revenue of $254m in Rotorua district
  • Bay of Plenty employs more than 3,200 directly in the dairy industry

Taranaki 

  • Regional dairy production was worth $822 million in 2009
  • Taranaki employs almost 3,900 directly in the dairy industry
  • 26 per cent employed in South Taranaki district by dairy industry, nearly 9 per cent of total dairy related employment in New Zealand

Manawatu-Wanganui/King Country

  • Dairy production in Otorohanga was $234m in 2009 and Tararua $188m
  • These regions employ more than 3,200 directly in the dairy industry

Canterbury

  • Regional dairy production was worth nearly $1 billion in 2009 (Ashburton $471m, Selwyn $270m, Timaru $185m)
  • Canterbury employs nearly 3,500 directly in the dairy industry

Otago/Southland

  • Regional dairy production was worth nearly $900m in 2009 (Southland $710m, Clutha $182m)
  • Otago/Southland employs more than 4,200 directly in the dairy industry.

The full report is here.


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