Tony’s second insulating factor is China’s strong economic growth. ‘A lot of the stuff we are buying as consumers is made in China,’ said Tony. ‘China’s factories have been going gangbusters making all those spas and door frames.’ Plus, he said, China is an important export market for New Zealand: ‘32% of New Zealand’s export revenue comes from China. The Chinese economy grew 2.3% last year and is expected to grow 8%+ this year,’ he advised. According to Tony, this is positive news for our economy as demand for Kiwi export commodities such as dairy, seafood, and forestry remain high.
The third factor Tony identified is the government’s wage subsidy. He said, ‘It allowed yourselves as employers to take time to see what would happen with your markets before you made the hard decisions.’ Tony believes the scheme has ensured unemployment rates have remained stable. And we haven’t seen the large-scale redundancies some anticipated.
His last key insulating factor is interest rates. Tony said low-interest rates have contributed to rising house prices and extra growth in the economy. Interest rates were already low when Covid struck and were subsequently cut by 0.75%. According to Tony, ‘Record low-interest rates saw more people enter the housing market.’ At the same time, term deposit rates are now at record lows. Tony pointed out this has impacted property supply as homeowners adopt a wait and see approach. Furthermore, he said, central banks around the world have signalled low-interest rates will continue for some time. And this has provided an extra impetus for people to spend. However, the Reserve Bank of New Zealand has baulked this trend and has indicated that interest rates will increase from the second half of 2022. ‘Because we have some good growth-driving forces, we’ll see interest rates rising here before overseas,’ said Tony.
When it comes to the economic outlook, Tony identified several encouraging signs. He said that the strong pickup in economic growth overseas alongside successful vaccination rollouts and massive fiscal stimulus were all good news. ‘The IMF is predicting the world economy will grow by 6% this year after shrinking by 3% last year,’ he said. And good growth in our export destinations is good news for the whole country according to Tony. ‘The prices we are receiving for our commodities on average is now 16% higher than at the end of 2019,’ he said. Closer to home, he highlighted stable unemployment rates, strong consumer spending and the economic stimulus from construction as positive indicators.
However, Tony did have some advice for businesses seeking to remain competitive. ‘One of the lessons is it’s relatively dangerous using your just-in-time inventory management system because shocks come along. The current shock in supply chains will pass, but it could take a year or so,’ he cautioned.
Furthermore, he identified shortages in skilled labour as a major concern. ‘I expect the net flow of Kiwis to go negative in the next 12 months,’ he said. ‘We’re an economy that’s going to remain constrained by a shortage of staff in particular, going forward.’ ‘If you follow the old route of advertise, market, sign up clients and then try to hire people, find the premises, the materials, even the finance, you could come badly unstuck,’ he warned. ‘The profit route for many businesses now is to make less of higher quality at a higher price.’
Thought-provoking and insightful, Tony Alexander’s talk has given the Henderson business community plenty to think about. We are very grateful to Tony for taking the time to share his knowledge and wisdom. And we are also thankful to the Kings Garden Café for their hospitality and great food. The creamy roasted mushrooms are highly recommended!
This was the latest in our popular series of regular Business Breakfast Forums. Keep an eye on our Upcoming Events section for more events.