An optimistic take on the economy

AUCKLAND, Today: Comms Council ceo Simon Lendrum writes (on the council website): “I’m writing this on the off-chance that some of you may find it useful in conversations with clients relating to economic conditions.

“The talk of recession, economic headwinds, the need for belt-tightening etc, is loud and incessant.

“I attended a financial outlook on Friday that left me feeling a lot more optimistic. So I thought I’d share the headlines with you so that the next time you’re faced with pessimism, you might have some ammunition for a brighter outlook.

While there’s no denying recessionary conditions, it’s by no means a one-size-fits-all experience.

“Service Sectors both here, and worldwide, are accelerating. While manufacturing is undoubtedly suffering significant decline, not everyone is feeling the same pinch.

“There’s a similar chasm between big and small. Small business is finding it more difficult to navigate conditions, particularly staff-related.

“There’s divergence even within sectors. Hospitality, while down significantly overall, is a two-tier experience.

“Some are doing it incredibly tough, but others are as busy as they’ve ever been. It’s just not a simple, ‘everything’s down’ recession.

“One observation that resonated with me was that the slowdown in demand is actually alleviating the excess work that was unsustainable in 2022.

“In other words, demand is falling, but falling back to closer to 100% of capacity, rather than 120% of capacity.

“The slowdown in demand is actually alleviating the excess work that was unsustainable in 2022.”

“When we asked our members to tell us how many open roles there were across the industry last year, we stopped counting at 200.

“Those open roles, coupled with no slow up in demand for output, meant we were operating above 100% in capacity (everyone was feeling December-like exhaustion in October).

“As an industry (and I recognise that individual experiences may conflict with this statement), those open roles provide a small cushion for the decrease in demand implied by recession.

“And there’s plenty of signs for optimism …

• Migration is soaring – if they continue over the next few months we’ll be closing in on record highs. This should have a suppressing impact on the wage inflation of the last 24 months.
• Inflationary pressures are easing
• Airfares are easing
• Commodity prices are easing
• House prices have fallen
• Freight costs are falling
• Supply constraints are easing
• The RBNZ announced a loosening of its LVR restrictions on first home borrowers, suggesting that real estate prices have reached levels that are no longer concerning.

“But, on the flipside …

• Building demand has slumped
• Debt servicing costs have rocketed
• And for those of you with older target audiences, the rise in interest rates mean that the retired generation have got cash to spend again as their savings are generating good returns.

“The net outcome of these forces is that while the NZ economy is certainly heading for recession, the likelihood of it being shallow has greatly increased, and the preconditions for recovery are in place.

“All of which, of course, stands side by side with the body of evidence that tells us that a recession is also too good an opportunity to waste for brands wanting to steal market share from their less enlightened competitors.

“Turning off the tap now will lead to significant brand damage over the long-term, and if brands wait until the world looks more buoyant to invest in future demand, it will be significantly more expensive to do so.”

• commscouncil.nz/an-optimistic-take-on-the-economy