Amy Adams has responded to NZIER’s Quarterly Survey of Business Opinion (QSBO) calling Finance Minister Grant Robertson “contemptuous” of anyone who criticises the economy.
Adams also defended the previous Government’s migration policy, which some have criticised for depressing productivity growth.
“I think it’s time he got his head out of the sand and realised that what businesses are telling him is that he should be concerned about it,” she said.
The latest QSBO showed headline business confidence nearly doubling from 10 to 19 percent pessimistic, the lowest it has been since 2011.
More importantly for the Government it showed businesses’ confidence in their own activity easing. Seasonally adjusted experienced domestic trading activity found a net seven percent saw improvement, a decrease from 15 percent the previous quarter. This is the lowest level since 2013.
Expectations for own activity in the next three months also fell from net 16 percent to 13 percent, the lowest since 2016.
This metric is highly political as the Government has used businesses’ optimism for their own firms to deflect criticism of declining business confidence numbers. Now that it is on the decline, the Government has less room for deflection.
Increased costs and a Great Recession
Adams puts the pessimistic numbers down to increased costs faced by businesses.
“Businesses are now looking very clearly to the increases in costs and a large part of that is from Government policy that they can’t pass on and they’re worried about Government policy and regulation,” Adams said.
She said minimum wage increases, industrial relations policy, as well as charges like the increase in fuel tax were seeing businesses lose confidence in the economy.
As businesses’ assessment of their own activity has declined, Labour has had to shift tack on its deflection of business confidence surveys.
Economic Development Minister David Parker labelled them “junk,” and Robertson responded to a question from Adams in the House last week by disputing the link between business confidence and economic growth.
“We know that Governments that have a Labour party at the core we’ve seen a level of pessimism that doesn’t reflect in GDP growth,” Robertson said.
Roberson noted that between 2000 and 2008, roughly the period of the fifth Labour Government, business confidence was pessimistic 82 of 99 months, but GDP growth averaged 3.2 percent per annum. Between 2009 and 2017, business confidence was positive 87 of 95 months, but GDP growth averaged 1.98 percent.
But today Adams shot back at this defence.
“They ended the fifth Labour Government in recession far before the rest of the world went into the GFC so I’m not sure that that’s necessarily the model that we want to be following,” Adams said.
New Zealand’s recession officially began in the March 2008 quarter, before any OECD nation, according to Treasury.
When perception becomes reality
The question before observers now is whether declining business confidence will lead to slower GDP growth or whether the Government’s expansionary policies, particularly the Families Package and KiwiBuild, will lead to the economy picking up towards the end of the year.
The Families Package, a $5.53 billion transfers regime, began on July 1 and the Government’s $2 billion KiwiBuild programme is not expected to ramp up until later this year and potentially early next year as it works to achieve its target of building 1000 homes by July 1.
But Adams was sceptical that these policies would lift growth and the economic outlook.
“You’ve got to remember a big chunk of that families package spending was put in place in Budget 17 so it’s been mostly booked into the numbers in front of us,” Adams said.
“The fact that we’re seeing them deteriorate substantially this year both in real terms and in business confidence terms I think has already taken account of what’s coming down the pipeline and has shown a real deterioration since then,” she said.
ASB Chief Economist Jane Turner told Newsroom said that the answer to this question was not yet clear.
“Maybe growth is delayed and growth will happen, maybe the worst will happen,” Turner said.
Kiwibank economists Jarrod Kerr and Jeremy Couchman echoed this sentiment, saying that a key question from the survey, “is whether or not the current pessimism permeating the economy is a short-term event, or something more concerning”.
They said that the pullback in business confidence and own trading activity was a “red flag” for economic growth.
But Turner noted that the QSBO was less clear than last weeks’ ANZ Business Confidence Survey and that there was still cause for optimism.
“The construction sector is at a peak, that affects the manufacturing sector as well what we saw in the detail is these two sectors are starting to slow and that is striking some of these headline measures down,” Turner said.
“But we’re also seeing reasonable activity measures in the services sector and sectors that have some exposure to exports are still doing quite well,” she said.
Turner said that strong employment intentions show that labour demand is still strong and this could be good news for the economy.
“Growing labour demand and rising wages are going to lift household incomes and that’s a key factor underpinning our forecast because that goes to household spending,” she said.
Is the answer more migration?
Adams said that most commentators believe the only thing underpinning GPD growth currently is population growth and fiscal stimulus.
She criticised Labour’s election policy to cut immigration. Labour have had difficulty implementing this in Government.
“They were the ones who campaigned on taking 20,000 to 30,000 cut from net migration figures. If they do that the economy will utterly tank,” Adams said.
When asked whether high immigration would lead to GDP per captia growth declining and decrease productivity gains, Adams was sceptical.
“It can absolutely be complicated,” she said.
But she argued that if the “right” immigrants came to New Zealand, productivity growth could be shared through the economy.
“If businesses are growing and creating opportunities you get the opportunity to turn that into real productivity growth,” she said.