Prime Minister Chris Hipkins (left) and National leader Christopher Luxon look set to be heading for a tight election race. Graphic / NZME
Prime Minister Chris Hipkins (left) and National leader Christopher Luxon look set to be heading for a tight election race. Graphic / NZME
Uncertainty around the election in October is likely to put an extra dampener on an already subdued economy, says BusinessNZ.
The latest BusinessNZ Economic Conditions Index shows signs of the slowdown to be seen in the recessionary first quarter GDP numbers.
The BusinessNZ Economic Conditions Index tracks 33 economic indicatorsincluding GDP, export volumes, commodity prices, inflation, debt, and business and consumer confidence.
It sits at -1 for the June 2023 quarter, a deterioration of 7 points on the previous quarter but an improvement of 4 points on the previous year.
This uncertainty around the election meant businesses were likely to adopt a wait-and-see approach to new investment, said BusinessNZ director of advocacy Catherine Beard.
The Herald’s latest poll of polls showed the election shaping up as too close to call but with Labour edging ahead of National and, together with the Green Party and Te Pāti Māori, the most likely coalition.
“With an election on the horizon, investors are cautious. Policy announcements from all parties will play a significant role in spending in the lead-up to October,” Beard said.
She said it was “disappointing, but perhaps not surprising that no tax relief was provided for or even signalled in the Budget”.
“Given that inflation continues to eat away at disposable incomes, at least a signalling of inflation-adjusted personal tax rate thresholds might have been expected. Maybe the Government is saving this as a pre-election sweetener later this year,” she said.
Broadly New Zealand’s economy was facing similar conditions to others around the world, Beard said.
The New Zealand economy was forecast to show mediocre growth over the period to June 2025 with a range of factors slowly currently impacting on performance.
“Economic growth the world over is expected to be modest over the next few years, as countries and consumers start to focus inward.”
International commodity prices were holding up reasonably well, although significantly down from their highs, Beard said.
But expectations were for softer prices, reflected in a downgrade of the anticipated milk payout to dairy farmers.
At the same time input costs remained elevated, eating into profitability.
“Commodity prices are coming under some pressure which is not helping producers given continued high input costs are resulting in squeezed profit margins,” Beard said.
Regulatory policy remained a key concern, she said, with a number of proposals creating uncertainty - for example, climate change policy initiatives and many others that could inflict added costs on businesses and households at a time when some believe New Zealand is facing a cost-of-living-crisis.
Domestic activity indicators, such as retail sales, all pointed to a slowing economy, while continuing low business and consumer confidence point to declining activity as inflation and rising interest payments curtail spending.
On the positive side of the ledger, supply chain disruption had largely dissipated, while increased numbers of migrants and tourists were helping to ease labour supply issues.
Migration had surged spectacularly, the report noted.
In the space of a year, New Zealand has gone from an annual net outflow of over 19,000 people to an annual net inflow of 72,300.
“While the healthy net migration gain continues, it should also be noted that there has been an exodus of New Zealanders heading overseas, not unexpected given the closed borders prevalent until last year,” Beard said.
There was a net loss of 26,100 NZ citizens over the last year, larger than the 5,000 average net loss from 2015- 19, but smaller than the 29,000 average net loss between 2005 and 2014.
Despite the hype over the recent increase in net migration, the increase was likely to be explained more as a result of closed borders than as any sort of flow of individuals to New Zealand as an attractive economic destination, the report said.
