Building confidence: NZ's gloomiest economist - We're still glass half-full

ANZ Chief economist Sharon Zollner. Photo / File

Calling Sharon Zollner New Zealand's gloomiest economist is a bit unfair.

The ANZ chief economist is perfectly cheery in person.

But she and her team have led a chorus of concern this year.

They've been first to predict official cash rate cuts and downgrade their GDP growth forecasts.

And they've been on the money, as growth here and around the world has slowed faster than expected.

"Of course I would rather be right about the economy going super well. It would be a much cheerier message," Zollner says.

"I don't think I'd be doing anyone any favours if I didn't call it like I see it."

Zollner also runs the ANZ Business Outlook Survey which hasn't helped that downbeat reputation.

The survey has become politicised as confidence has declined to the lowest levels in a decade.

In defending the research she's been caught in the firing line.

"We've been quite open about the fact that there is a political element," Zollner says. "You can estimate it, because it happened in 2000 [under the Helen Clark government]."

But even allowing for political impact, it doesn't change the story, she says.

"The charts all showed another step down this year when there hasn't been a change of Government."

"So the proof's in the pudding," she says.

By her own admission, it's not impossible to rule out the risk that we're talking ourselves into a funk.

"But look at things like export intentions, firms are saying they are experiencing weaker global demand … you can't blame the Government for that."

Can we really talk ourselves into a downturn? I ask.

"Well we seem to be doing our best to," she says,

"We are very affected by what we think other people think, whether that's in the clothes we wear, or whether we choose to make a business investment. I think that's a big part of where the business cycle comes from."

Nonetheless, there is collective wisdom in the survey, she says.

"There is real information in them."

But it is important to understand the difference between headline confidence and firms' own intentions, she says.

"Headline business confidence is asking [business] to play at being a bank economist, that's hard enough for us to get right."

But it's how people are feeling about their own business that informs their decision-making.

"Then, when you break it down further, from expectations into what they are actually seeing - things like how busy are you, the capacity utilisation question - you get even more reliable data."

It's an issue with all economic forecasting, that the most accurate data is the most backward looking. It's a balancing act.

And like all data it should be viewed in context, not in isolation.

It's true, for example that a bunch of indicators are at their lowest since 2009, Zollner says.

"Which always sounds terrible, but actually we were halfway out of the recession by then."

In reality most of the indicators are nowhere near their lows, she says.

Another reason that business confidence has become a headline grabber is that it has drifted lower over such an extended period.

"It's been a gradual, persistent slowdown rather than suddenly going off a cliff," Zollner says. "And that made it a bit tricky for the Government to know what to do about it."

Zollner says we can be upbeat about sheep and beef returns. Photo / Getty Images

It gets even more complicated when you consider the issues businesses raise relating to an economy running both too hot and too cold.

So firms still say that finding skilled labour is their largest problem, at the same time as intentions to take on new staff are falling, Zollner says.

For all the gloom about the economic direction of the past year, Zollner is not picking a recession. She and her team have GDP growth bottoming out at about two per cent early next year.

"So the glass is still half-full."

There is a caveat to that of course.

"No one is forecasting recession but no one ever does. So you can only take a limited amount of comfort from that."

Ok, so what are some things to be upbeat about? I ask.

"Sheep and beef returns, wow!" she says.

Both are at, or near, record highs.

"That's a really positive story," she says.

Dairy is looking pretty good too, with global supply constrained and holding prices up, she says.

Meanwhile, the Kiwi dollar has been pushed down by the global risk appetite and our recent rate cuts.

"We do have that nice combination of the dollar being weaker than the commodity prices would normally warrant, so we've revised up our dairy price forecast to $7.15 [per kg of milk solids]," she says.

So does she expect to see the confidence improve?

Maybe.

"Time is great healer," Zollner says. "If we carry on and we don't get a drought and we [have] great export returns and population growth maybe turns around, the housing market might take off again, I can't rule that out."

It would be misleading to say Zollner is completely relaxed about the state of the world - especially when we talk about debt levels and the weakening power of monetary policy.

"I think there's a credit super-cycle, over the top of the business cycle, that must be nearing its end, she says. "And that can't be good."

Around the world a lot of the growth in the past 10 years has been propped up by "life support" - a combination of fiscal policy and zero interest rates, she says.

Whereas in New Zealand it looks like we might bottom out at around two per cent GDP growth without having resorted to that kind of life support.

"It's not calamitous," she says.

"We have record low interest rates but to the extent we've had low inflation they haven't been bizarrely low. We have fiscal firepower up our sleeve."

"We've had, more or less, a normal business cycle and that is actually quite unusual in this global environment," she says.

"We haven't built up the kind of stresses the rest of the world has, and that has put us in a better place to weather any downturn."

BUILDING CONFIDENCE