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.
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
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).
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)