The Prime Minister appeared sanguine yesterday as a sheaf of reports pointed to a rapidly slowing economy.
The most worrying came from Treasury which has now dropped its growth forecast for the year to a flat 2%. That’s down from the 3% forecast in the Budget which was just over three months ago.
But there was also a report from the ANZ Bank which described business confidence as measured by the Bank’s Business Outlook Survey as being on the ropes, hitting a new six-year low in August.
“A net 29% of businesses are pessimistic about the general economy, the fifth consecutive monthly decline,” the bank said.
“For the second consecutive month, general business sentiment was in negative territory across all five sub-sectors.
“Agriculture was by far the most pessimistic, whilst construction and services are the least.”
The Bank however found some hopeful signs.
“The NZD is moving down and the OCR is headed lower.
“Dairy prices have started to recover, though they remain at low levels. Lower petrol prices boost discretionary incomes.
“We need to keep Chicken Little in the coop; the last thing New Zealand needs at present is to talk ourselves into a funk.”
At his weekly post Cabinet press conference, the Prime Minister was echoing that with a few embellishments of his own.
He described the business optimism index as being “net positive 26%”.
What that appeared to mean was that 26% of respondents were positive. That of course left 74% who weren’t.
But maybe the Prime Minister’s real message came when he picked up on the ANZ language and said that it was really important that we didn’t talk ourselves into a “funk.”
“That’s exactly the point that you run the risk of talking the economy down,” he said.
But Treasury’s monthly economic indicators’ report was a mixed bag.
On the one hand they acknowledged that the economy was slowing.
Key economic data released over August continue to point to a weaker growth outlook than forecast in the Budget Update.” they said.
“Employment growth continued to slow as businesses reduced their demand for labour, while the labour force expanded solidly owing to population growth, together leading to a lift in the unemployment rate.
“Despite steady growth in labour incomes, weak retail trade data for the June quarter suggest that private consumption growth will be significantly lower than forecast in the Budget.
GDP growth in the June quarter is expected to be around 0.6%, lower than its 0.7% forecast in Budget Economic and Fiscal Update (BEFU).”
Treasury said a decline in consumer confidence and a slowdown in employment growth were expected to dampen private consumption growth in the September quarter, which would weigh on GDP growth.
But they also said most of the key drivers of GDP growth remained intact, with domestic demand supported by accommodative monetary conditions, high migration, robust construction activity and a steady expansion in business activity. The depreciation of the exchange rate is expected to partly offset the negative impact on export revenues from lower dairy prices.
Interestingly the Prime Minister made a passing reference to this week’s Global Dairy Trade auction at the start of the press conference.
He would have known that NZX futures prices for whole milk powder were continuing to trend up.
Nevertheless the trading banks appear to remain unconvinced.
The BNZ dropped it GDP forecast below Treasury to 1.7% and Chief Economist Stephen Topliss said that as each day passed the likelihood of an economy stumbling to near-recession, increased.
He also predicted a significant pick up in the unemployment rate exacerbated by strong migration inflows not being met by job growth.
Satish Ranchod, Senior Economist at Westpac said businesses have also noted that expectations for activity in their own firms has fallen again.
“This tends to be a leading indicator for GDP growth, and reinforces our expectations for a significant weakening in GDP growth over the coming year. “