Capitalism still looks safe
Socially minded Govt will need a strong economy
here’s always a morning after, when left- leaning governments take power. The world of business and financial markets is seldom enamoured with such results.
But my hangovers usually last longer than this one.
The dollar fell moderately on Thursday night and after lifting sharply at 9am it dipped below US70c yesterday afternoon.
But by way of context, it was trading as low at US68.48c in May when National was still well in control. It fell below US63c in 2015.
News that Winston Peters will not have the purse strings as Finance Minister or hold sway over monetary policy will have reassured international markets.
Despite the gravity of Peters’ speech on Thursday, the fundamentals of capitalism in New Zealand are not about to be overturned.
Our new Finance Minister, Grant Robertson, spent some time reassuring business on Labour’s commitment to fiscal responsibility.
And his ideas for reform of the Reserve Bank Act are not radical by international standards.
We are likely to see the bank move to a committee- based decision process on rate setting. The current regime was in favour of that.
They’ll be less keen on suggestions that independent board members are added to the committee but that will be worked through with the appointment of a new governor in the next few months.
Robertson has also suggested the policy targets should include a focus on unemployment as well as inflation.
Purists will be concerned that this may split the bank’s focus and dilute effectiveness. But many central banks — such as the US Federal Reserve — already include it as a measure.
And from a practical point of view it won’t change much while
Our new Finance Minister, Grant Robertson, spent some time reassuring business on Labour’s commitment to fiscal responsibility. And his ideas for reform of the Reserve Bank Act are not radical by international standards.
unemployment sits below 5 per cent.
The stock market fell yesterday morning by about 1 per cent but bounced back during the day.
Hit hardest were the retirement village operators, whose valuations are closely tied to property prices.
That sharemarket reaction points to an expectation that property prices will take a hit in the next few months.
The Auckland market has been slowing and had effectively stalled before the election as it waited for a signal. Thursday’s result was not the signal property investors would have hoped for.
But that’s democracy and many people have been hoping for a fall.
Robertson’s immediate task now is to reassure business and markets.
If Labour wants a honeymoon period to push through some significant social change, it will need the economy to stay strong.
In the short term that hinges on confidence.
Both business and consumer confidence fell in the lead- up to the election.
ASB economists in their report yesterday morning predict a short, sharp headwind for the economy.
The biggest risk is the property market as potential changes to immigration and foreign investment rules emerge.
But as statistics out yesterday show, immigration has already peaked so depending on the time it takes to implement policy, it may be largely irrelevant.