Fear of war forces contingency plans

A big factor weighing on chief executives' minds for next year is the relative weakness of the US dollar.

Those taking part in the Herald's survey are relatively optimistic about the prospects for their own businesses next year.

But they are certainly less enthused about the outlook for the global economy, with a clear majority less optimistic for the next six months compared with the previous six months.

"The key driver is general levels of activity in the United States," said Deutsche Bank's Scott Perkins. "The current macro economic settings are sanguine - reasonable growth and stimulatory settings."

'It is a " major worry" said a director who chairs several companies. "The ongoing strengthening of the New Zealand dollar has the potential to choke exports and encourage more imports."

Northern Employers and Manufacturers head Alasdair Thompson also cited the "rising kiwi". If that breaches US53c and A$90c - as Thompson expects - "it will have a negative impact on exports, the balance of trade and our economy."

A rural sector player added that currency strengths "misrepresent the real confidence in our country".

"Genuine equity support is minimal. Interest rates hold currency strength and the share index is poor."

Chief executives have some cause for concern. In the past week the New Zealand dollar hit a 32-month high against the greenback, pushing back through the US50c mark.

BNZ chief economist Tony Alexander cautioned that drought could also act as a drag on the Australian dollar.

The local pharmaceutical industry claimed to be insulated from economic risks by corporate parents overseas..

"A key factor for us is negative real growth in health and Pharmac budget," said a local general practitioner.

The 55 chief executives who responded to the Herald's survey are leaving little to chance as they plan for next year.

Some are in hiring mode: notably international advisory firms, wine producers, financial institutions, some major retailers and manufacturers.

But a considerable number of chiefs - particularly from industries facing tough competition externally - have the firing button at hand.

Investment intentions remain cautious.

None of the chief executives detailed their plans: Too commercially sensitive.

But company staff are not the only people to face a potential reduction in opportunities.

"Mainstream business is so narrow now that there are not a lot of really top CEO opportunities available,"said an experienced player in the recruitment industry.

"Nor are there plenty of opportunities in the Government and local authority sectors as there have been for the last couple of years."

This view was underpinned by the lack of business activity among large corporates reported by advisory firms.

Global equity markets and increasing political tensions are playing a part in contingency risk planning for 2003.

"War is a big issue for us, and the adjustments amongst our key markets that might take place," said a tourism chief.

Those from US-affiliated companies were more comfortable about prospects in the United States.

"The US is turning the corner," said one pharmaceutical company head.

The economic factors which affect most chief executives' industries are predictable: Interest rates, inflation, oil prices and the strength of the US dollar.

There is concern that if war breaks out in Iraq, oil prices will spiral. Air New Zealand chief executive Ralph Norris said the airline had put caps in place to protect against "calamitous events in the Middle East which could see fuel prices spike badly".

"They come with a cost, but we are prepared to pay for certainty," he said.

The risk of inflation once again getting out of hand was cited by several chief executives who have yet to gain confidence in Alan Bollard's rein as Reserve Bank Governor. Those canvassed in subsequent calls did not hold much hope that the official cash rate would stay at 5.75 per cent for the next two years - too many uncertainties at play.

The negative effect of the tough new immigration laws on economic growth was also cited and the oblique message they send to our vital Asian trading partners about this country's attitudes.

Then there was the list of usual suspects: Anti-business regulation, the uncompetitive corporate tax rate which chief executives want reduced but have given up badgering the Government about.

Legislation which makes employers liable for stress and fatigue, without even defining what stress is, had "opened the doors to bounty hunting lawyers", Thompson said.

Verging on hyperbole, he added that the structure of the fines business potentially faced was so high that offending employers would be treated as potential criminals.

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