ANALYSIS: The OECD has just slightly downgraded its outlook for the global economy over the coming two years while lifting their inflation forecasts in response to the tariff war initiated by President Trump. We have yet to receive the bad news on our exports to the United States, but it looks like that time is coming.
Thankfully, the returns in the dairy and beef sectors are currently quite good and will provide some insulation when the disturbance comes our way. But it pays to note that drought has been declared in several regions around the country and for those affected the good prices being received will mean little when production volumes fall away.
That, along with the stalling of the tourism sector recovery post-Covid, is why talk about this recovery in the economy being export-led is perhaps a tad misplaced. Exports will contribute, for sure, but the NZ dollar is only around two cents lower than it was a year ago against the greenback.
This matters because coming out of the previous three recessions in our economy the currency had fallen 10-15 cents and provided a strong jolt up in export returns and regional economies.
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This recovery will be more evenly spread around the country than usual and rely on the willingness of householders to spend. Unfortunately, with worries growing about the world economy and people perhaps absorbing the fact that interest rate falls this cycle are almost over, my monthly Spending Plans survey has detected a retreat in consumer optimism.
In the middle of last year, a net 42% of my respondents said they would cut back their spending on things generally in the next 3-6 months. That improved to a net 10% planning to spend more come the December survey and evidence of falling borrowing costs.
But my first survey for the year in February showed a net 10% of consumers planning to cut spending and that has just worsened to a net 15% planning cutbacks. For retailers, the outlook as we head through autumn into winter is still one of constrained customer flows.
Independent economist Tony Alexander: "We have yet to receive the bad news on our exports to the United States, but it looks like that time is coming." Photo / Fiona Goodall
That perhaps explains why my monthly survey of businesses with Mint Design has shown a jump in the net proportion of businesses planning to spend more on retaining their existing customers. Expectations are not high that many new people will be coming through the doors.
The most noticeable aspect of my latest business survey is the sense of disappointment expressed regarding the weak nature of the recovery so far. There are certainly hopes that things will be better later this year, but few businesses are seeing the upturn to anything near a strong degree as yet.
The second most noticeable thing about the survey is the lack of comment from businesses regarding falling interest rates bringing stronger activity. It is as if the pullback in borrowing costs is seen simply as the absence of a large negative as opposed to a big source of stimulus.
That is exactly the message I was trying to get across from August last year when the comment by one journalist that NZ was headed to being a “rock star” economy again encouraged me to strongly point out why this would not be so – and that was before Mr Trump’s election victory.
There remain challenging times ahead for our economy and while talk of higher infrastructure spending is positive, that matters for the next few decades and is not much relevant to the strength of recovery over 2025-26.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
