Mood downturn has real effects

Businesses like certainty. It gives them the courage and confidence to invest, hire, and to help create a successful New Zealand. But we are living in uncertain times, both at home and internationally. A business that does not believe the country is heading in the right direction, or that believes outside influences will hamper its operations, will avoid spending decisions – for example, whether to expand into new markets or increase staff numbers.

Let’s be clear, however, that it is naive to assume all blame can be laid at the feet of the Government, that we can insulate ourselves from any outside influences such as the current concern over global trade tensions, or that the Government can protect us from the vagaries of these.

But there are some things we can influence to ensure an environment conducive to growth.

Business can only react to what’s in front of it. If the perception is that the seas are calm, confidence reflects that. If the perception is of a few waves ahead, confidence suffers. Right now, business is looking ahead and seeing looming waves.

A list of costs is coming down the pipeline that businesses will have to figure out how to afford.

The obvious ones include increases to the minimum wage and the pressure that then puts on wages at higher skill levels, plus a long line of wage claims with industrial action firmly attached.

Every initiative adds costs and removes jobs at one level or another. And unless productivity increases, businesses won’t be able to absorb those costs. Add to that a significant legislative agenda – some 120 reviews announced so far, plus a number of policies with the potential to impact on growth and therefore on business.

And there is now indisputable evidence of a downturn in business confidence impacting on actual activity. Lead indicators like such as the BNZ–BusinessNZ Performance of Manufacturing index (PMI) and the Performance of Services Index (PSI) provide some of the most up-to-date pictures of business activity across the country.

Both surveys show lower levels of expansion that have not been seen in some time.

Out just this week, the latest PMI shows New Zealand’s manufacturing expansion continuing its downward trend. It has revealed the third consecutive month where expansion has weakened as well as a second consecutive monthly reading below the series’ long-term average.

More concerningly, given that the index is based on actual activity, it is hinting at more than just a slowdown in the manufacturing sector. If that continues, the economy will start contracting.

The PSI is also showing activity slowing. The manufacturing and services sector makes up over 70 per cent of gross domestic product. Continual slowing will have an effect on GDP growth.

Though New Zealand is a small, free-trading nation a long way from major international markets, we cannot afford to isolate ourselves from the world. We have always derived our influence by connecting with and working with the rest of the world.

We have enjoyed decades of good workplace relations. We’ve been relatively strike-free since compulsory unionism ended in the 1980s, and we’ve had a long run of harmony and collaborative enterprise since.

But we are facing challenges that are affecting both employers and employees.

They arise from rapid change, new technology, and new competitive forces sweeping the world, and they will prompt us to respond in a competitive, creative, skilled way.

By recalibrating pace and priorities, the Government should be looking at policy that will provide sustainable, inclusive growth and highquality jobs that lead to higher incomes and make New Zealanders better off. But it needs to listen to businesses more closely to help define that policy and deliver those outcomes – because the Government can’t do it alone.