It’s time Robertson became Adrian Orr’s mate
Finance Minister Grant Robertson should signal a loosening of Government borrowing and investment restraints on Tuesday to help the Reserve Bank revive confidence, economic growth and inflation, Bernard Hickey argues.
Fresh signs that the global economy is slowing and becoming more turbulent are increasing the pressure on the Government to ramp up its infrastructure spending to help the Reserve Bank as interest rates slide globally and locally towards zero percent.
Government borrowing costs fell again this morning to an intra-day low of 0.99 percent in wholesale bond markets, which technically means our bond curve inverted. Bond curve inversions have preceded every US recession in the last 50 years, but have not been as correlated to recessions here.
Finance Minister Grant Robertson looks set to indicate a revamp of the Government’s infrastructure plans with Crown Accounts data for the full 2018/19 financial year next Tuesday. The books are expected to show a large surplus and an early return below the Government's net debt target of 20 percent. Robertson has previously indicated he would be comfortable targeting a range of 15-25 percent from 2021, which would give him room to signal a loosening. Figures for the 11 months to the end of May showed a Budget surplus of $7.0 billion ($2.5 billion more than forecast in May) and net debt of 19.3 percent.
Growing headwinds offshore
Data out on Thursday showed the US services sector’s activity slowed to a three-year low in September, adding to news the previous night showing US factory activity slumped to a ten-year low.
US stocks fell sharply on Tuesday night on fears the various global trade wars will hit growth, but they rose overnight on growing expectations the US Federal Reserve will cut interest rates again on October 30. Stocks producing dividends look more attractive when bond yields and other interest rates fall, and are cheaper to buy with borrowed money.
Markets are also on edge ahead of US non-farm payrolls data on jobs and wages in the world’s biggest economy in September. Economists expect job growth of around 150,000. A significantly lower number could further unravel confidence.
Monetary policy mate required
There is also growing talk the Reserve Bank here will cut by more than 25 basis points two weeks later on November 13. Governor Adrian Orr has already indicated he would like more help from the Government to stimulate the economy, and to give wary business investors more reassurance about a big pipeline of road, rail and house building.
Orr said in a speech last week many central bankers had asked for "monetary policy friends."
"The friends of central banks are government fiscal policy (taxes and public spending and investment) growth supportive structural policies, and the business confidence and capability to invest in productivity-enhancing infrastructure," he said.
"There remains a loud call from all quarters of the country for leaders to better signal investment intent, and ensure we have the policy and goodwill to facilitate access to capital and resources to execute. This call for investment-intent is to all collectively-owned (e.g. Iwi), Crown-owned (i.e. central and local government), and co-operatively owned (e.g. traditional primary sector) sectors. It is not just to traditional businesses, or any one party."
'Help give us certainty'
Businesses are certainly looking for leadership and confidence.
Surveys from ANZ and the NZIER this week showed own-activity confidence, which is the politically unbiased indicator of future activity, suggest GDP growth slowed to stall speed under one percent in the September quarter.
Another survey out on Friday from the Wellington Chambers of Commerce and Business Central also showed one of the more vibrant regions turned pessimistic over the winter and spring.
A net negative 23 percent of respondents across central New Zealand expected the national economy to be worse in the next 12 months, which was down from a net negative 20 percent in the June survey and negative eight percent in March.
Expectations for the central region economy (from Taranaki to Gisborne down to Nelson) also slumped to a net negative 0.4 percent, from a net positive 6.0 percent in June and net positive 12 percent in March. It wasn’t all bad though. A net positive 26 percent expected their own businesses to improve, unchanged from the June quarter.
"I hear from businesses every day about how they are struggling with lack of clarity of the Government’s policies, the continuing increases in compliance costs, and difficulty finding the right staff with the right skills,” said Business Central CEO John Milford.
"Because of that, their intentions to invest in their own business continue to drop, and that is affecting not just the regional economy but the national economy as well,” Milford said.