Why businesses have lost confidence in the New Zealand economy

It's no surprise business confidence is falling despite the economy being in an "okay" place, according to one economist.

The latest NZIER business confidence survey found a net 31 percent of business owners expect conditions to deteriorate in the coming months, its worst result since the depths of the global financial crisis a decade ago.

It comes as the economy enters its 10th consecutive year of growth - a "very long cycle" according to Shamubeel Eaqub.

"If you look around the world, New Zealand's not doing too badly. But our confidence numbers - all those kind of leading indicators - have been weak since 2016. That's when things kind of started to topple over," he told The AM Show on Thursday.

"This is a very long cycle - we're in our 10th year of expansion now. We've been growing for a long time. But it's been a weird cycle - it's been long, it's been slow, it's been very disparate across industries and regions. It hasn't felt like a normal cycle for most people."

Figures from the Reserve Bank back up Eaqub's claims. Annual growth since 2010 has been consistently between 2 and 4 percent - while the decade before the global financial crisis saw growth fluctuate between 2 and 6 percent, before plunging into the negative in 2009.

GDP over the past two decades.
GDP over the past two decades. Photo credit: Reserve Bank

"We still have a fair bit of momentum in the economy, right? We had the GDP numbers out a couple of weeks ago, the economy's still growing at an okay rate. Not very good, but okay."

Eaqub said slowing GDP growth was largely the result of global markets cooling off, partly in thanks to the US-China trade war, as well as banks cutting back on lending since 2016.

"When things are good, they can't give you enough money. When things are not so good, they don't want to - they've got no money."

Getting business confidence back up will be important, he says, to ensure industries with positive outlooks stay that way.

"We have a record number of consents for residential and commercial...if you're not confident you may not build those houses. On the consenting side, we're literally running at record levels. There's a huge pipeline of potential work, but doesn't mean all of it will go on, and it doesn't mean it will continue to accelerate from here."

The Reserve Bank is widely tipped to drop interest rates further to stimulate spending. They're already at a record-low 1.5 percent, making borrowing cheap and saving much harder to justify. Lowering them might also lower the dollar, making New Zealand a more attractive to foreign investment and helping exporters. 

"We still have the Reserve Bank cutting interest rates, and the Government should and can increase spending," said Eaqub.

Newshub.

 

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