Business Update: Issue 86
HOUSING BOOM TRANS TASMAN The housing boom apparent in many parts of NZ is happening in Australia too. On average, house prices in Australian
state capitals rose 5% in the June quarter and Sydney prices have doubled in the last 6 years. Homeowners have used the
increased value to increase debt and yesterday the Australian Reserve Bank warned of adverse effects on the whole
economy when the bubble bursts and they have to rein in spending.
INTEREST RATES IMPACT ON EXPORTERS Yesterday’s decision by the NZ Reserve Bank not to lower interest rates was accompanied by a warning of a “speculative
dynamic” in the housing market and a hint that interest rates may not be lowered in the short term. Also yesterday, NZ
manufacturer Click Clack threatened possible relocation overseas if interest rates stay high, saying they caused high
exchange rates as capital flowed here from low-interest countries, making it harder for NZ exporters to compete - Click
Clack’s currency losses over the year to June were $4m. NZPA reported the Reserve Bank’s decisions on interest rates
were being driven by domestic property values, to the detriment of manufacturing.
UK UNIONS GETTING MORE MILITANT British unions are becoming more militant, and EU practices will make the situation worse, says the Confederation of
British Industry. The CBI points to draft European Constitution provisions that would allow unionists from continental
Europe to travel to Britain to join secondary-action strikes there. The CBI also wants a halt to new employment
legislation, saying Britain is losing labour market flexibility and competitive edge and that “an increasing proportion
of internationally mobile business investment will be located outside the UK.”
MORE WOOLINESS ON THE WAY? Meanwhile, new employment legislation in NZ is steaming ahead, with the Employment Relations Act review proceeding
behind closed doors. Last week the Minister of Labour hinted that the review might bring a change in definition of
unjustified dismissal – to something more like “unfair dismissal”. This would be a backward step. The current test of
“justified” is “what a reasonable employer could have done in the circumstances” – a fairly objective test. “Fairness”
is a more subjective concept, less easy to define, and therefore more likely to be used to try to gain employer payouts
following personal grievance procedures.
CARBON CREDIT SCHEME BEGINS The tender round for projects to reduce greenhouse gas emissions starts this month. Examples of such projects would
include businesses introducing environmentally friendly fuel or waste techniques that are currently uneconomic. An
activity cannot be a project unless it would be uneconomic without payment of the incentive. Successful tenderers will
receive promissory notes for carbon credits, for trading on a future carbon credit market. See:
www.climatechange.govt.nz.
DOES UNITED FUTURE SUPPORT BUSINESS? United Future will soon get the chance to show whether it really supports business or not. The Government needs United
Future votes for its move to abolish access to the Privy Council. Business NZ and other business and Maori groups have
written to United Future asking it to oppose the move, unless endorsed by a public referendum: “The Privy Council has
proven a powerful protection against inconsistent judicial decision-making. As respected academic Geoffrey Walker noted
recently, Australia’s High Court went ‘off the rails’ for 15 years in its administration of tort and contract law after
the oversight of the Privy Council was removed, at great cost to business and the community….Unless business and
investors have confidence in the quality of administration of the rule of law and the upholding of property rights and
contracts, investment and growth will be discouraged.” Will United Future listen to business concerns or will it fall in
behind the Government?
RISK OF ANTI-BUSINESS ACTIVISM The concern with ditching the Privy Council is that we could get ‘activist’ decisions from any NZ court that replaces
it. It’s a justified concern given the recent action by the Court of Appeal to overturn a 40-year old decision that
sparked the current foreshore debacle. Activist decisions have in the past resulted in the business sector being
penalised. Check out today’s NBR where James Allan explains why the Appeal Court judges should not have taken the
‘activist’ foreshore move.
GROWTH STATS
ENERGY USE & PRICES FALL
Total electricity generation fell 4.3% over the June quarter (during the Govt campaign for lower consumption).
Total generation for the quarter was at 8,793 gigawatt hours - same as the June 2000 quarter.
All forms of energy generation were down from the June 2002 to 2003 quarters: hydro generation (-3.7%), thermal
generation (-5.8%) and gas production (-31%). There was also a 15.3% fall in gas production over the June 2003 year
compared with the June 2002 year.
Hydro generation was at its lowest June quarter level since 1992, and with the exception of the Sept 2001
quarter the lowest of any quarter since Sept 1992.
Compared with the June 2002 quarter, deliveries of petrol and diesel increased 3% and 6.1% during the June 2003
quarter.
Retail prices for petrol fell 9.8% between the March and June 2003 quarters, with prices 6.9% lower than in the
June 2002 quarter. For commercial users, petrol prices fell 3.5% over the same period, and 5.1% comparing the June 2003
with 2002 quarters. Diesel prices also fell for commercial users, dropping 13.5% from the March to June 2003 quarter,
and 9.7% lower comparing the June 2003 with 2002 quarter.
HOUSING BOOM CONTINUES THOUGH SOME FALLS
Seasonally adjusted building consents fell from June to July, but there were 2,348 new dwelling units (excluding
the volatile apartment units) consented in July, the highest monthly total since the series began in 1990.
Consents for new apartments have been strong over the July 2003 year, despite a slowdown in demand during the
last few months. There were 5,556 new apartment units during the July 2003 year, up 52% on the previous July year.
Waikato had the largest increase in new dwelling units when comparing July 2003 with 2002 (+91 units) followed
by Canterbury (+43 units) and Otago (+32 units). The two largest regions, Auckland (-290) and Wellington (-79) had the
largest falls.
The total value of non-residential building consents was $310m in July, led by offices and administration
buildings ($56m). Overall, the trend for the non-residential value of consents continues to be flat.
WHOLESALE TRADE SALES DOWN
Seasonally adjusted sales fell 2.2% during the June quarter to stand at $16,469m, the largest quarterly fall in
wholesale trade sales since the survey began in March 1995.
10 of the 16 storetypes had falls in sales, notably primary product food (-$213m) and petroleum products
(-$137m). Highest sales increase was in food & grocery products (+$150m).
Wholesale stocks fell 2.6%, following a 1.7% rise during the March quarter. (stats courtesy www.stats.govt.nz)
COMMODITY PRICES STABILISE
After retracting some of its gains since mid-August, the value of the $NZ was largely unchanged on a monthly
average basis, putting an end to 9 consecutive quarters of falls in commodity prices when converted to $NZ terms.
The $NZ commodity price index rose 1.2% during Aug. This is the same as the ANZ world commodity price index,
which has increased for 3 of the last 4 months, but still remains 6.5% below the May 2001 peak.
The increase in the world commodity price index was largely due to a sharp rise in beef prices, with other
commodities also showing some increase. Of the 13 commodities, only skins, apples and venison fell significantly.
ANZ said a pick-up in the US economy may be beginning, though the US current account deficit could widen further due to
stronger growth, leading to a further strengthening of the $NZ against the $US - but declines against the $Aus and the
euro may offset this. (stats courtesy www.anz.co.nz)