Handbrakes on investment: Mindset and burnout
Lack of specialist workers, capital goods shortages, and post-Covid fug and uncertainty could hold back the next leg of recovery, writes Tom Pullar-Strecker.
If the Treasury is right, business investment should finally be about to take off on the back of low interest rates and a faster-than-expected recovery.
Economist Cameron Bagrie says that will be critical to the next leg of the economic recovery.
‘‘At the moment we are very reliant on the government chequebook and monetary policy, and we need business investment to get into that enduring phase,’’ says Bagrie, who runs a business called Chaperon helping businesses access credit.
But economists and business leaders are warning that firms’ appetite to invest could be stymied by supply-chain problems and a lack of key workers.
Then there is the human factor to consider, with burnt-out employees and business leaders less able to take on new demands, or less enthusiastic about doing so.
Susanna Every-Palmer, a psychologist at the University of Otago in Wellington, says early analysis of data collected by the university in May shows a lot of people are still experiencing increased anxiety from the pandemic.
‘‘Their confidence, finances, relationships, or lifestyles have taken a hit from Covid and they know that it is not over yet,’’ Every-Palmer says.
Our mental state definitely affects our financial decisionmaking, she says.
‘‘When people feel anxious, they are disinclined to take on risk or make big decisions.
‘‘This is often not even a conscious choice. Without thinking much about it, New Zealanders may be feeling more like putting their money under the ‘metaphorical mattress’ rather than investing in that exciting new start-up.’’
Reserve Bank governor Adrian Orr made the point several times last year with regard to low interest rates, that while you could lead a horse to water, you couldn’t make it drink.
ANZ chief economist Sharon Zollner says businesses are stretched, ‘‘which means they will be asking a huge amount of their workers’’.
‘‘Time and again what we are hearing is that was fine in the ‘crisis period’ when everyone rose to the challenge and the adrenalin got everyone through, but now it has been over a year and, anecdotally, people’s wellbeing is getting a bit stretched,’’ she says.
‘‘Making an investment requires confidence that you are in a place to be making a good decision, that you have the information you need, and that you are ‘thinking straight’. But if firms are struggling day-to-day it is always hard to look at the big picture and think strategically.’’
Getting back to more conventional economics, business investment slumped 4.8 per cent in the year to the end of June 2020 despite record low interest rates, as Covid lockdowns bit.
It has since moved sideways, climbing only 0.6 per cent in the year to the end of this month, the Treasury estimated in its Budget update.
But the Treasury forecasts 5.1 per cent growth in the year ahead, rising to a 9.4 per cent jump in business investment in the year to June 2023.
Zollner notes ANZ’s polling indicates investment intentions by businesses have increased, albeit off a low base, with a net 25 per cent reporting in June that they were likely to invest more in the year ahead than just passed.
‘‘Imports of capital equipment appear to be holding up pretty well.’’
What has changed in recent months is that firms facing higher-than-expected demand can no longer throw extra staff at that ‘‘problem’’ because the labour market is so tight and labour from overseas has been cut-off, she says.
‘‘You can see job ads going through the roof.
‘‘The economy has been surprising us on the upside.
Firms are clearly struggling to keep up with demand and financing is still very cheap, so that is quite a lot of the ingredients you require for business investment to happen.’’
But while labour shortages can encourage investment in automation to raise productivity, what happens if firms are short of the very workers and equipment they need to achieve that?
‘‘Say you want to build a new building, it is very hard to get the workforce,’’ BusinessNZ chief executive Kirk Hope says.
‘‘Similarly, if you look at the IT sector, about 10 per cent of positions are vacant, so if you want to invest in a large-scale IT project or even improve your cyber-security, it’s very hard.’’
Firms are also facing difficulties getting key capital goods into the country, though he hopes that may change in the next six to nine months ‘‘as global supply chains free up a bit’’.
For now, building products are in short supply.
Zollner also highlights
concerns about the global semiconductor shortage which is constricting the availability of everything from computer servers to commercial freezers and vehicles, and which is not expected to be quick resolved.
Then there are rational reasons for business owners hesitating to get out the chequebook.
Infometrics economist Brad Olsen says that while there is confidence in the ‘‘here and now’’, that is not being projected far into the future, partly because of the continued risk of further lockdowns.
‘‘I do expect the economic recovery to continue, but for businesses there is still that unease and uncertainty about what it all looks like in 12 months’ time.
‘‘Businesses are facing cost pressures not only in terms of supply chains but they have already seen a 27 per cent increase in the minimum wage over the past few years, five extra days’ sick leave and a new public holiday next year.’’
On top of that there was almost nothing in the Budget for business, Olsen says.
‘‘In fact the word ‘business’ was quite hard to find in Budget 21. It seems there was a bit of a missing piece there.
‘‘And if house price inflation does fall back and that takes some of the wind out of consumer sales, what does that mean for overall spending expectations?’’
Zollner agrees house prices have provided a big tailwind for higher consumer spending and says ‘‘clearly that has got to give after prices have risen so much’’.
‘‘Although times are good at the moment, there will still be that wariness of what is around the corner.
‘‘Interest rates might rise sooner than expected and we could have a global financial crisis tomorrow. I think households have thrown caution to the wind, but businesses need a bit more persuading.’’