Forecasts suggest a happy new year

The New Zealand economy will grow strongly over the next couple of years, according to the latest NZIER consensus forecasts. Coming at the same time as the improved forecasts from the Treasury, it could be a good year ahead. Business editor Dene Mackenzie reviews the latest data.

The stars appear to be aligning for the Government as it prepares for an election year.

Business and consumer confidence continues to improve, the latest forecasts from the Treasury are better than expected and consensus forecasts are picking a good year ahead for businesses and households.

One of the key measures of a strong business sector is measured by how long people take to pay their bills. And again there is good news.

The Dun & Bradstreet Trade Payments Analysis, released on Wednesday, showed on-time payments had reached a 12-month high.

D&B New Zealand general manager Lance Crooks said the number of business invoices being paid on time reached the 12-month high as the finances of New Zealand companies continued to benefit from a steady improvement in the local economy and healthy consumer confidence.

Analysis of company invoice payments during the September quarter showed 61% were made within 30 days, an increase from 59% in the previous quarter and 60% in the previous corresponding period. The majority of late invoice payments were made between one and 30 days past standard terms.

The increase in prompt invoice payments resulted in the average length of time taken for businesses to pay each other falling for the second consecutive quarters to 41 days, he said.

''There is a clear relationship between healthy cash flow and a strong business sector. With favourable economic conditions in New Zealand, businesses have had a greater capacity to meet their financial obligations on time and, in turn, invest back into their operations and the economy more generally,'' Mr Crooks said.

Earlier this week, the Treasury produced some economic forecasts which received positive reactions from business sectors generally.

Nick Tuffley
Nick Tuffley
ASB chief economist Nick Tuffley says the Government's books are ''looking tidy''. As the 2014-15 surplus drew closer, attention, particularly in an election year, would naturally be drawn to the more significant surpluses of subsequent years. ''There is some flexibility to consider modest tax cuts or spending increases, timed towards the end of the next parliamentary term.''

The tidy look incorporated in the half-year economic update was underpinned by an expected lift in the economic outlook and resultant lift in revenues, he said.

A key positive shift compared with the May Budget was a levelling off in the net debt ratio around its current level, leading to a material reduction in net debt over the next four years. As a result, the major news for markets was the improvement in the debt position enabled the Debt Management Office to reduce the bond tender programme - it might even run a bond buyback in early 2014, Mr Tuffley said.

''Overall, we agree with the Treasury's assessment of the economy. The economic recovery is becoming more entrenched with solid growth anticipated over 2014. This will leave the New Zealand Government in a somewhat envious position of having choices, particularly when compared with its developed country peers,'' he said.

Chris Money
Chris Money
PwC director Chris Money said the half-year update highlighted a cautiously optimistic approach by the Government.

The Government continued to predict a return to surplus in 2014-15. In addition, the economy was forecast to grow by an average of 2.6% each year over the next five years and the unemployment rate is expected to fall below 6% in 2014-15 and down to 4.8% in 2018.

The Government faced five key challenges leading into Budget 2014 and the ensuing parliamentary term: striking a balance between affordability, demand and supply for housing; getting a sustainable, high-value public service; driving growth in the regions; globally competitive cities; and managing demographic change in a fiscally responsible manner.

''Budget 2014 will be pivotal, not just to the current Government's hopes of winning the 2014 election. It will also largely set the scene for the hopes of the Government to win a fourth term in 2017,'' Mr Money said. The New Zealand Institute of Economic Research consensus forecasts indicate broad-based, stronger growth ahead.

Economic growth was forecast to pick up from 2.8% in the March 2014 year to 3.1% the following year.

Economic growth would be across household spending, investment and exports.

Exports this year were depressed by a drought, but would grow strongly in future years. Dairy production had already recovered strongly from the summer drought.

The labour market would improve, the forecasts said.

''There will be more jobs, fewer unemployed and wages will grow. The pace of improvement is better than previous forecast.''

On the down side, inflation would increase towards 2.5% over the next few years and interest rates would increase from early next year.

The Westpac McDermott Miller December consumer confidence index came out earlier this week at 120.1 points, up 4.8 points on the September quarter. Consumers had become more optimistic about the economy and more upbeat about their own finances.

The professed willingness of consumers to spend had not increased as much but on balance, that suggested consumer spending would continue at a solid clip but might not accelerate much further.

''If any more evidence was needed the economy is now in recovery mode, this is it,'' Westpac chief economist Dominick Stephens said.

''The consumer confidence index has risen to its highest level since September 2009, when the economy experienced its first burst of recovery.''

Compared with 2009, consumers were both much more upbeat on the near-term economic outlook and more optimistic about their own finances, he said.

In fact, people were the most upbeat about their finances they had been in six years. Economic optimists now outnumbered pessimists by the widest margin since December 2004.

''What's more, the improvement has been remarkably widespread across age, income and regional groups.''

The results were in keeping with the facts on the ground, Mr Stephens said.

The construction sector was ramping up, not just in Canterbury, the job market was on the mend, house and share prices had continued to rise and rural incomes were getting a large boost from post-drought recovery and sky-high export prices.

Consumer confidence in rural regions had risen ''particularly sharply'' in the past few surveys, he said.

Given all the positivity, it could be expected there was a similar lift in the survey's questions relating more directly to spending appetites. But those had not moved much. The number of households saying now was a good time to buy a major household item, or they would spend a cash windfall, was lower than six months ago.

Mr Stephens emphasised that did not equate to renewed consumer retrenchment. The survey's various spending questions were still at or slightly above historical averages.

When people said their finances were improving they also tended to spend more. But it was a note of caution in what was a very positive report.

The most obvious culprit was housing-related concerns. With house prices marching steadily higher and restrictions on low equity borrowing now in place, the hurdle to home ownership had risen, Mr Stephens said.

Also, talk interest rates would rise next year might have made homeowners more uncertain about future property values and their own future mortgage payments.

Global accounting body CPA Australia says the prospects for New Zealand businesses are looking very positive, following the Government's release of its half-year fiscal and economic update.

CPA Australia chief executive Alex Malley said the figures were the strongest evidence yet the New Zealand economy was recovering, and underpinned the Government's improving financial position.

''Overall, the business community will take confidence from these projections, particularly the continued GDP growth peaking at 3.6% in 2015, and we should see that translate into new jobs and increased incomes.''

But a recent survey conducted by CPA Australia showed small businesses might yet need more convincing, he said.

The Asia-Pacific Small Business Survey found, compared with their peers in other regional markets, Kiwi small business owners were less confident in the prospects for their own businesses in 2014 than they were for the overall economy.

CPA Australia was supportive of the Government's efforts to boost the productivity and competitiveness of the export sector, particularly as New Zealand looked to exploit opportunities in Asian markets, Mr Malley said.

David Parker
David Parker
Labour Party finance spokesman David Parker is not so convinced the benefits of the so-called good news are flowing down to others in less fortunate positions.

The duty of a government was to ensure all Kiwis received a benefit, he said.

''The real secret of these forecasts is National has overlooked the interests of the vast majority of New Zealanders.

''National conveniently seems to have forgotten the overwhelming majority of New Zealanders aren't better off they they were five years ago. Wages are stagnating and job growth is lagging behind economic growth.''

Most New Zealanders were missing out on a ''fair share'' of the recovery, Mr Parker said. In the last quarter, wage growth was half that of inflation.

Prime Minister John Key and Finance Minister Bill English were ignoring the majority of rewards were going to the small proportion of the population that were already the best off, he said.

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