No easy cure for growing pains - Print 21 magazine article
If the economy is growing then that's a good thing, isn't it? Well, that depends on how you deal with it which, as Tony Alexander explains, currently means focusing more on improving productivity than trying to find extra people.
Looking ahead to where the New Zealand economy is likely to go over the next couple of years there is good news and bad news for the printing industry. Let's start with the bad news first. You are going to be in the same boat as every other industry in the country with regard to continuing increases in costs. Starting with the labour market, we have the following: New Zealand's unemployment rate is the lowest in the OECD at 3.8 percent and businesses continue to say that the biggest problem they face is getting labour - not just skilled people but unskilled as well.
Even the downturn in the economy over late 2005 into early 2006 failed to dent strong business demand for employees and it is worth noting that although the newspapers tend to highlight redundancies at particular worksites, these job losses are massively offset by job gains. For instance, 21,000 extra jobs appeared during the March quarter this year.
All business people should be expecting that wages growth will remain high going forward and that there will be a very strong need to focus on boosting productivity rather than blindly trying to hire extra people as one may have done in the past in order to secure growth in output.
No debt relief in sight
Debt servicing costs are also likely to remain relatively high going forward. Although many people may be feeling the pain from the Reserve Bank raising their official cash rate three percent in the past three and half years, all the evidence suggests the inflation risk for New Zealand going forward is about the same as it was when the Reserve Bank started their tightening cycle. Growth prospects continue to look reasonable and the economy remains very well insulated by a range of factors we have been citing for almost four years now.
These insulating factors include easing fiscal policy (a lot to come in election year 2008 we suspect), hefty infrastructure spending, high job security and wages growth, strong business investment, above average growth overseas with recent upward revisions to forecast growth rates, and record commodity prices that are still rising.
But at the same time as our growth remains insulated by these and other factors, resource availability remains poor with no indication that the three and a half years of monetary policy tightening has led to a freeing up of the roads, electricity availability, people or buildings. Machinery availability has improved slightly but capacity utilisation remains well above average.
We suggest business people should budget on interest rates remaining high for at least the next two years because of this combination of reasonable growth prospects and continuing resource shortages.
All hail the mighty dollar
So what is the good news? The exchange rate basically. The Kiwi dollar is high and is likely to rise further and remain strong for the next two years on the back of reasonable economic growth, high and rising commodity prices, and high and perhaps still rising interest rates. The printing industry is well-known for hefty expenditure in new machinery from overseas and the rising Kiwi dollar will improve the affordability of this machinery. In addition, while rising energy prices will place some upward pressure on inks, the exchange rate will provide some relief.
Probably the main message we want to get across at the moment is that the growth environment for New Zealand in the next few years is going to be different and not necessarily worse. It will involve a high exchange rate and high interest rates plus continuing shortages of labour with rises in electricity costs etc. The demand growth is going to be reasonable, especially on the back of rising commodity prices and the other factors mentioned above. The challenge for businesses will be to achieve growth more through focusing on productivity enhancement than simply advertising for extra customers.