'The export-oriented economy is reeling' - ANZ chief economist

Coronavirus hits business confidence; Agricultural sector's confidence dives while construction sector's lifts

27th Feb 20, 2:09pm by Jenée Tibshraeny

Business confidence and ease of credit were the two issues front of mind for New Zealand firms as fears around coronavirus started escalating earlier this month, according to ANZ’s February Business Outlook survey.

A net 14% of the two thirds of businesses that responded to the survey in the first half of February, had a negative outlook of the economy. Meanwhile a net 18% of this group had a positive outlook of their own activity.

It was a different story for the third of businesses that responded to the survey after February 17, once coronavirus started dominating headlines.

A net 33% had a negative view of the economy and a net 4% a positive view of their own activity.

ANZ chief economist, Sharon Zollner, said the indicators respondents in the two groups had the most differing views on, were business confidence and ease of credit.

Coronavirus aside, the biggest theme in the survey was the collapse in confidence by the agricultural sector. Respondents’ own activity outlook plummeted from a net 16% being positive in December to a net 30% being negative in February.

The manufacturing sector was downbeat too, with respondents’ views of their own activity falling from a net 24% being positive to a net 4% being positive.

Meanwhile the construction sector lifted from a net 10% to a net 22% being positive.

Zollner summarised: “Things were looking up for New Zealand businesses as the New Year rolled in. It’s not all bad; the construction sector remains very upbeat.

“But it is clear that the human and economic damage being wrought by the devastating COVID-19 outbreak in China, and now in other countries, is taking a heavy toll on sentiment and confidence in the primary sector and manufacturers already (with dry conditions also weighing).

“And not just sentiment, but incomes, turnover and profits.

“How long the disruption will last is unknown, but as the news comes in we’re getting more and more concerned ourselves. Our best hope is that the disruption proves short-lived, but there’s no question the export-oriented economy is reeling.”

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31 Comments

by Cowpat | 27th Feb 20, 2:25pm 1582766725

As the virus gets tagged a pandemic, real estate auctions will need to be conducted solely on line. Lets be honest, the primary concern of the banks will not be agriculture and the export oriented, but access to credit and domestic real estate.

by Kezza R | 27th Feb 20, 2:49pm 1582768146

If anyone is buying that is...

by J.C. | 27th Feb 20, 2:57pm 1582768659

Lets be honest, the primary concern of the banks will not be agriculture and the export oriented, but access to credit and domestic real estate.

You're on the money. It's very difficult for a bank economist to say that though. They want to give the impression that the economy is built on productive enterprise selling commodities, products and services. Reality is that approx 70% of their business is based around mortgage lending. Furthermore, about 60% of GDP is comprised of and tied to consumer spending. Selling milk powder and kiwifruit to China is not really the breadwinner.

by Foxglove. | 27th Feb 20, 3:37pm 1582771044

Export orientated economy? Has it ever been anything else? Could ever be anything else? What then are the alternatives to base our economy on?

by skudiv | 28th Feb 20, 9:51am 1582836703

You can have a consumer based economy.

by linklater01 | 28th Feb 20, 1:51pm 1582851088

skudiv,

We do-we consume residential property. The eventual result will be severe indigestion.

by JLM | 27th Feb 20, 9:13pm 1582791200

It is export oriented but indirectly.

National incomes underpin the total national credit stock.

Higher export values + domestic ease of credit (yield compression) = higher asset values

Lower export values + domestic ease of credit (yield compression / higher quantity of money) = higher asset values (or stable

Lower export values + lower ease of credit = lower asset values + deflation

Domestic asset values can be supported at any price, to the expense of inflation.

There is an equivalence that can be modelled to these ratios too

No export income + extremely loose credit policy = stable asset values (at the expense of inflation)

by Good Samaritian | 29th Feb 20, 8:45am 1582919154

Youre on the money also.

In short, to pay for the imports, we have to generate money from exports. Exporters employ locals and pay wages; including to support industry. While there is an internal economy; including tourism that also relies on overseas people spending money here, new construction is very reliant on the lending process to keep this going.

With overseas tourists and students not coming in the numbers they were in peak season, and China ports turnaround slow (resulting in 15000 logging truck drives reduced hours), it wont be long before this effects the confidence to buy real estate and the lending associated with this.

We can only hope this virus will pass us shortly, however I suspect based on the late December start of it suggests a June finish earliest. In poorer countries, longer I suspect.

All I know is we need more housing, and government needs to step up to the plate to deliver it. AirBnb has had a big effect on rentals in the tourist hot spots of Auckland, Rotorua and Queenstown, so reduced overseas tourists is good news for tenants, as the lack of cashflow may force landlords into accepting permanent tenants.

Interesting times ahead.

by Justa comment | 27th Feb 20, 4:18pm 1582773510

touché, yes the NZ 'economy' for many. But great to see players in our other 'economy' doing well such as A2 milk and F&P heathcare, these real businesses should get the low interest rates, not residential housing speculation.

by xingmowang | 27th Feb 20, 3:30pm 1582770613

NZ is benefiting enormously from the close economic ties with China.

NZ will be the first country seen recover from this virus breakout after China recovers from it.

A even deepening relationship with China in terms of investment, person to person tie, or even military and political tie in desperately needed.

by powerdownkiwi | 27th Feb 20, 3:41pm 1582771319

troll

by Foxglove. | 27th Feb 20, 4:19pm 1582773566

Should never have suggested he read Catch-22. Now he thinks he’s Milo Minderbinder reincarnated.

by RollingOn | 27th Feb 20, 3:49pm 1582771774

I'll give you three good reasons why we should reduce or cut economic ties with China

1) Diversification is a tool used to reduced risk. You use it when you buy assets, and it comes in handy when one of them tanks.
2) Capital flows out of China (and elsewhere) are having a distortionate effect on NZ markets. Some benefit, some lose. But at these extremes, I think more lose in the long run.
3) China has a significantly worse human rights record than Apartheid South Africa did. We cut ties with them.

A little refresher in a few words: Tiananmen. The Uighurs. Hong Kong. Property rights violated en masse. Corruption as the rule, not the exception. Supression of religion. Torture. And so on.

by Lapun | 27th Feb 20, 5:54pm 1582779287

It is sad you leave what ought to be the most significant to last.

It is a moral issue. When I needed a doctor after my heart attack I didn't ask whether he was morally sound however if I had been convinced he was Josef Mengele from the nazi death camps then I would have refused treatment. Similarly the USA has many faults but it has nothing like the current treatment of Uighur muslims or the organ harvesting of Falun Gong prisoners. It is not that these crimes happen it is the fact they are ignored - compare that to US govt response to Abu Ghraib torture and prisoner abuse.

It is time NZ took sides. And I don't mean criticising Australia about Asylum seekers on Manus Island.

by Jarlaith | 28th Feb 20, 7:20am 1582827627

I think you’re being much too generous to the USA. They’ve done equally morally repugnant things. The only difference between Chinese and American hegemony is that whilst the former does not sugar coat it, the latter’s ruthlessness is carried under the aegis of empty rhetoric that purports to place American as a civilising agent. Anyone familiar with USA history would be keenly aware of what American power is built on.

by Tradersam | 27th Feb 20, 4:39pm 1582774780

Xing get a life instead of posting such tripe!

by Fritz | 27th Feb 20, 6:57pm 1582783061

The best way for him to get a life is by posting such nonsense to gain social credit points

by Lapun | 27th Feb 20, 5:44pm 1582778654

I'm dying for military and political ties to China. I'm old enough to remember Albania's boast "with China we are 1 billion people strong".

by Keen Observer | 28th Feb 20, 12:06am 1582801612

Despite my constant input for Xing about China? - honestly, I believe what he said. The only way for NZ to move forward in the future successfully?
Is to be super close to China in every level.... because only by then, NZ will realise what it's all about then can do comparisons with other Nations in this world which has already been through it.
C'mon tell me folks, how many of you able to bike? without ever falling? - There'll be a catch, despite rosy promise by XingXiJinpinMowang - but NZ must learn about it, the only way? it's not being away/keep distance from it, but go with the flow, immerse with the romance. With couple countries experiences later we can form my opinion,.. for now NZ? you must learn about it.
China is for Chinese, Chinese for China, China is live to consume, No significant natural resources? don't worry we've got population, give me the land, allow people to move in - we do the rest.

by Jarlaith | 28th Feb 20, 7:26am 1582827998

Historically it would make sense for NZ to become a vassal state of China since it is within its sphere of influence and China’s return to being a hyper power cannot be stopped. Then again, it would be foolish for NZ to continue its economic integration with China whilst firmly compliant with USA strategic interests. NZ should seek an independent course from both powers.

by MissyChung | 28th Feb 20, 8:46am 1582832798

Xing is propaganda mouth for CCP or poorly informed.
I think the former.
Lol

by Lapun | 28th Feb 20, 12:38pm 1582846736

I think the latter - the Chinese are quite good at propaganda

by linklater01 | 28th Feb 20, 1:54pm 1582851267

xing,

I am beginning to suspect that you are having us on. Your posts are so ridiculous that you must be doing it for a laugh, as we all take the bait and respond with outrage. 'Fess up.

by Rumpole | 27th Feb 20, 4:01pm 1582772504

Farming is seeing a double whammy - Little killing space for Prime or culls, works schedule now $4.70Kg against $6 - reduction 21%. Drought = dairy farmers drying off early & more culls so schedule likely to go down - supply exceeds demand as usual. Local market weak for stores as drought forces sales due to lack of feed. Unlike the Tourist market which is unlikely to recover this season, I can at least keep the cows and hopefully growing. This may be a minor crisis now but the damage to confidence will be longer lasting.

by doubtingthomas | 28th Feb 20, 8:19pm 1582874399

Lots of pure south eye fillet and scotch on sale - 29.995/kg - $20 reduction. Lamb legs on sale as well - under $10/kg.

Alliance need cash as export values tank

by Keen Observer | 27th Feb 20, 11:45pm 1582800314

NZ has been ready the past 10-15yrs, build up some strong resilience, good GDP numbers, solid foreign reserve.
Excellent, ready & standby public healthcare resources - it has been storing up a stock sufficient enough should such event entering NZ - at least to couple months of ready steady supply.

by Keen Observer | 27th Feb 20, 11:51pm 1582800667

NZ has massive improvement the past 10-15yrs - we are one of the first small country in the world to show how to make the GDP number steadily increasing by non-conventional means. Traditionally in the past world tend to follow the economic of Productivity via export activities, But in NZ? - Now, it can be seen & proudly to be announced that by import activities, we can still maintain that GDP number momentum - since, we rely on the big massive new mother economic which will be there to sustain that number for us - Bravo, NZ.

by mealsonmeals | 28th Feb 20, 8:28am 1582831685

Really? NZ is 48th in the world in GDP per capita. Since 2010, we have grown our economy from $140B to $200B. A country like Ireland of a similar population is 10th in GDP per capita. Ireland has grown its economy from $197B to $357B since 2010. We're weak in comparison.

We need to do more away from exporting in the agriculture sector. We sit in a prime location, only being a 3 hours time difference to the West Coast of North America. We should be doing more on the tech front. Similar to how Ireland has boosted its economy so rapidly.

by Averageman | 28th Feb 20, 10:19am 1582838371

Interesting. One notes that Ireland did have a significant property reset, and enjoys not having the life sucked out in mortgage and rent by the banks and their risk buffers (investors) like we have in NZ. Ireland is also significant hub for international software licensing due which is funneled through it super low tax jurisdiction, and outside the US.

by linklater01 | 28th Feb 20, 2:01pm 1582851693

Keen Observer,

I can only assume fro this and other posts, that English is not your first language. Eg. "how to make the GDP number steadily increasing" and "we rely on the big massive new mother economic" Much of it is simply incomprehensible and the rest is wrong. What are these non-conventional means? Just what is non-conventionial about our principal exports-dairy, meat, logs, horticultural products etc?

by Keen Observer | 29th Feb 20, 1:21am 1582892491

Like I said, we're lucky county as compare to OZ.. keep on exporting those iron ore to China - NZ is not going to be reeling over this, since we're an import based nation. JK/Nat Co. has cleverly steer us away from those export/productivity works. I'm just being realist here, there's a new economic equation here; not just importing products, but also importing migrants to prop the GDP/housing/RE activities - genius, no body thought of that before.