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Is it 2008 again?

Published in Insights, The New Zealand Initiative’s newsletter, 3 August 2018

Many of us will remember those gloomy days in late 2008 when the Global Financial Crisis peaked. Stock markets around the world crashed, Lehman Brothers collapsed, and the world’s financial system was on its knees.

This was the last time that New Zealand business confidence was as low as it is again today.

This week, ANZ released its latest Business Outlook Survey. It revealed that “a net 45 percent of respondents reporting they expect general business conditions to deteriorate in the year ahead.”

Superficially, such pessimism is puzzling. Economic growth is forecast to hover around the 3 percent mark for the foreseeable future. Unemployment is below 5 percent, and inflation right in the middle of the target range.

Even globally, there is nothing remotely comparable to the shocks of 2008. Yes, the prospect of trade and currency wars is not nice, and we have had better US Presidents before. But gross world product has also been steadily expanding at between 3 and 4 percent of the past years.

So why these sudden signs of panic in the business community?

To be clear, it is not just a sense of uncertainty worrying business leaders (even though there is no shortage thereof in key policy areas such as tax and employment regulation).

It is rather that the business community is unhappy about the general direction in which the Government is taking New Zealand.

It is little wonder that business is alarmed about the Government’s policies. The drilling ban showed a shocking nonchalance about consultative policymaking. Proposed changes in industrial relations have the potential to be both costly and cumbersome to employers.

More generally, there are doubts about the competence of Government as exemplified by mishaps and minor scandals.

To be fair, confidence numbers may be overly sensitive to party-political factors (they were also poor during the 2000s boom), but these developments are still worth worrying about.

Perhaps it does not matter much what business leaders think about the Government. Government must make decisions that are good for the country and not just one group or sector.

However, the ANZ Business Outlook Survey also demonstrates how business confidence goes hand-in-hand with future economic growth. And this amplifies the concern.

If the business community believes that our policy direction is so bad it makes them feel like it is 2008 again, New Zealand has a problem.

The Government must act quickly to address legitimate concerns and dispel misplaced ones.

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