Late in 2013 there was a definite pick up in the economic activity in the New Zealand economy, particularly in Auckland. Many professionals and business owners had anecdotally been saying that 2013 was a terrible year. For us it had been binary: either we were flat out or we had nothing to do at all. There was simply nothing in between.
So far 2014 has seen a return to what I would refer to as normality with a more constant work flow but greater confidence overall out there. We are seeing a greater interest from clients in doing things be they commercial property acquisition or development, residential property development or simply business expansion.
We certainly have seen the benefit of the special housing accord with several projects centred on clients getting approval to designate existing pieces of land as SHAs. This will fast track development of the land and naturally the housing stock in Auckland.
The counter to this is the spectre of rising interest rates. While we have seen a long period of historically low interest rates, normalising does need to occur at some stage and that will definitely slow economic confidence and activity. For every $100,000 someone has borrowed, a 1% interest rate increase equals about $80 a month in extra outgoings. With the high levels of debt particularly for personal house acquisition and rental properties, this will have a significant flow on effect and could well slow down the housing price boom in Auckland.
The election also looms large with an early election date in September. The question will be what happens with the minority parties and the uncertainty around this is likely to slow economic confidence down from June on in our opinion.
Finally, one of the biggest issues that we have seen in the last 12 months is what we are calling the Australian disease. With a slowdown in economic activity in Australia, many Australian businesses have been forced to review their overhead structures and downsize. Unfortunately for New Zealand, many New Zealand businesses are either branches or subsidiaries of Australia and instead of getting rid of their mates down the hall, the Australian bosses and accountants are getting rid of people in New Zealand. Sadly, these New Zealand businesses are actually very profitable but the reality is that the people making the decisions don’t want to get rid of people who are their friends, and instead choose to get rid of people further away that they don’t need to deal with. I have seen two examples of this in the last few months myself with profitable businesses being forced to downsize in New Zealand simply because the Australian operations are not performing. This is a real economic threat to New Zealand.
So where we end up for 2014 and beyond no one knows but at least everyone is a bit happier about the outlook. The surveys and confidence indexes are showing positive signs and at least that means improvement in the economy. Here’s hoping that it’s a quick road to recovery and that 2014 is indeed better for everyone.