Building confidence: Can we turn around the economic gloom?

Business confidence is at its lowestlevel in about a decade. But are things really as bad as they seem? Photo / Getty Images

Business confidence is at the lowest level in around a decade. But is it really as bad as it seems? Are we in danger of talking ourselves into recession? Today, the Herald launches Building Confidence – a series focusing on what can be done to turn the sentiment around and boost confidence in the economy.

"I don't think it's impossible to turn around," says Employers and Manufacturers Association chief Brett O'Riley, about the current state of business gloom.

"Pessimism isn't the nature of business people."

There are different levels of confidence in different sectors, he says.

"It's a dichotomy. You can talk to entrepreneurs and young people they are excited about some of the opportunities that are coming."

There is more optimism in sectors like tech, in exporting and even in manufacturing, he says.

"But if you're a small business and you're mainly focused on the domestic economy … it's hard."

Defining why it is so hard for businesses right now isn't simple - and it's become quite political.

The country is not in recession, the Government is in surplus, unemployment is at historic lows, commodity prices are strong and the dollar is in a good place for exporters.

Employers and Manufacturers Association chief Brett O'Riley. Photo / File

But where previous economic cycles ended with a bang, this one seems to have sprung a slow leak.

Some kind of external shock - a stockmarket crash or a major drought - typically slams the economy into recession.

And while that usually leaves the economy in much worse shape than it is now, it means business quickly starts looking out the other side - forward to recovery.

It's different this time.

In terms of GDP growth, this economic cycle peaked in December 2016.

That's almost three years of slow decline, without things ever getting particularly bad.

"The boiled frog is not a bad analogy," O'Riley says. "Or it's a bit like the water torture, that constant drip, drip, drip."

There's no question that the malaise of low inflation and political uncertainty has squeezed economic growth and business confidence all over the world.

But for local businesses three circuit breakers would make a difference for confidence and certainty, O'Riley says.

At the top of that list is infrastructure.

"When are the projects going to start and when are they going to finish?"

O'Riley can't stress enough the extent to which traffic gridlock is frustrating Auckland business people.

There had been great optimism after the formation of the super city, that some of the big transport issues were being addressed," he says.

But that has dissipated as project after project has been cancelled or delayed.

"At a time when we're concerned about mental health – how you move around, how you get to work, how you get home, how you get to maximise time with your family - they're pretty serious issues.

"Just look at the southern motorway … how long have they been doing that upgrade? People are just exasperated."

The second bugbear for business is uncertainty around regulation.

It's not surprising that the policies of a centre-left Government don't thrill businesses.

But at this point business is just looking for some certainty, O'Riley says.

"Is there any more regulation coming. If it is when is it going to come so businesses can start to plan for it."

There have been a few positive signs in the past few weeks.

Movement on immigration law and two business-friendly tax changes have been received gratefully.

"We lobbied hard and we were really pleased to see the Government make some concessions around immigration," he says.

The EMA was also hearing of strong uptake of the R&D tax break and the two tax breaks around feasibility and continuing ownership was welcome.

"But the theme is still there," says O'Riley.

He cites the long wait for a Government response to the Fair Pay Agreements Working Group.

"Business feels like it's very very hard to get people and they've been saddled with more regulations than they've had for a long time and all of that adds to the complexity."

That goes to the third big stress that most businesses are coping with: skills.

"We need a skills pipeline for talents so businesses can grow. Can we be certain the Government can deliver?"

And then beyond that, you've got all the other gloomy stuff going on outside our control.

"There's the US-China trade spat, you've got the growing issue of climate change and then you've got disruption in general, the future of work, automation. Then you layer in the Reserve Bank stuff. Credit is already quite hard to get."

People are living a time when there is so much uncertainty … and particularly if you are in business.

That uncertainty shortens the planning horizons for businesses so investing for the next five years starts to look too risky.

You've got people going, "well I don't know if I want to deal with this many risk factors".
For all that, it isn't all bleak out there.

The EMA represents businesses from Taupō north.

O'Riley and EMA head of advocacy and strategy Alan McDonald, have just finished a tour of the regions.

The Provincial Growth Fund led by New Zealand First MP Shane Jones has boosted optimism. Photo / John Stone

"We certainly see in the regional areas that there's some real positivity," O'Reilly says.

"The Provincial Growth Fund (PGF) has stimulated a lot of activity and you can see in some of those areas like Eastern Bay of Plenty and Northland there's a real sense of optimism."

It's more than just the direct spend from the Government investment fund, says McDonald.

He recalls a meeting in Whakatāne where only one of the business people was seeing a direct spend from PGF.

"For the others – just because there was attention being paid to the region – and the opportunity was there, somebody was looking at them and giving them a hand, the confidence levels there were palpable."

"They feel that the first time in a while the spotlight is on them," O'Riley says. "So Eastern Bay of Plenty, Northland, there's a bit of focus on and a lot of effort going in."

But then you get to urban areas like Auckland, Tauranga and you're back to those frustrations.

It wouldn't necessarily take a huge change from the top to shift attitudes, he says.

"A number of business people are saying to me: 'what about a bit more of a long-term approach from Government, what about a bit more of a coherent story'."

That's not all party political, he says.

"I think that was a call under the last National Government and I think that's continued with this Government. Maybe be it's a product of MMP that we don't think as long-term as places like Singapore."

And it is important not to lose sight of the fundamentals that New Zealand has going for it.

"The fortunate thing," says O'Riley, "is we happen to be located in the middle of the fastest-growing economic zone in the world.

"We continue to produce things - and have an environment – that people want to consume. And that's what is underpinning the growth and that's why some businesses are still doing quite well."