Business Time

Business climate good despite global political turmoil

Wednesday 03 May 2017, 10:25AM
Business climate good despite global political turmoil

In his state of the nation address at the annual Natural Products New Zealand Summit in Nelson, ASB Bank chief economist Nick Tuffley spoke about the international market conditions and their impact on New Zealand and, according to him, interesting times await.

"Since World War II, globalisation has enriched hundreds of ­millions of people, but some people have been left behind," Mr Tuffley says.

These disenfranchised people, such as those who worked in manufacturing in the developed world, have led a push back against globalisation in recent years, resulting in voting decisions such as Brexit in the UK and, of course, the election of Donald Trump as 45th president of the United States.

These events are leading to an increasingly chaotic and uncertain business environment.

"Everybody wants to be first these days and that's having an impact on free trade," Mr Tuffley says.

It is unclear what impact the new US president's policies might have on trade with New Zealand.

It is known that Mr Trump has talked about cutting taxes, increasing spending in some areas and cutting red tape. 

While these polices might have a positive impact on trade, the detail of what will actually change, or when it might happen is still completely unknown.

Mr Trump has also spoken about increasing trade protectionism.

Even more negatively, Mr Trump has discussed labelling China as a currency manipulator. This would impact China's growth and, therefore, impact all of China's trading partners, including New Zealand, Mr Tuffley says.

"Trump is a big question mark," Mr Tuffley says.

"We know what he's wanting to do, but he's having trouble doing it."

Meanwhile, in France, the possible election of the far right anti-European Union extremist Marine Le Pen to the presidency poses a risk of ending the EU.

However, Mr Tuffley says there is not much chance of this happening as the important round two polls give Le Pen's opponent, centrist Emmanuel Macron, a comfortable lead. 

Despite the political turmoil, the general global outlook is quite positive, he says.

Across the Tasman, the Australian economy appears to be recovering from its downturn, while in Asia growth is strong in emerging economies, despite China's growth slowing.

Even the European economy is in better shape than it has been for years, Mr Tuffley says.

In New Zealand, the tide has turned on the ailing milk price, which is again increasing, in part thanks to reduced milk production from overseas competitors.

The tourism market continues to be the big winner, showing phenomenal growth in recent years, although recently there have been issues with having enough accommodation for the massive influx of visitors.

The tourism boom could be of benefit to those members of the natural products sector who are peripherally involved, Mr Tuffley says.

Most of the tourists are coming from Asia (especially Japan, South Korea and China), Australia, Europe and the US.

"An interesting statistic is that in China only 5% [of the population] have passports, imagine what happens if another 5% get one," he says.

The New Zealand economy overall is expected to grow by 2% over the next few years. Inflation and interest rates, which have been extremely low in recent times, are also expected to increase.

When questioned by an audience member on how this year's election might affect the economy, Mr Tuffley responded that there were unlikely to be large changes regardless of the outcome.

If National stays in power, the status quo is likely to continue, while a potential Labour-led government is not expected to change much due to its pledges not to increase taxes and be financially prudent, although the uncertainty arising from a new government always shakes business confidence, he says.         


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