Finance Minister Bill English, buttressing business confidence in his policies, assured the NZ Council for Infrastructure Development yesterday the Govt remains focused on building a sustainable long-term recovery which will be “quite different” from recoveries traditionally experienced. It’s a laudable aim. But the recovery will be “patchy at times” because of the uncertain global environment and the need for businesses and households to pay down large stocks of debt. Tackling the economy’s imbalances requires “a relentless, long-term focus and commitment.”

The confidence boost was needed. General expectations early this year of a quick return to business as usual have not been realised and business confidence has fallen. On the National Bank measure, it dropped for the third consecutive month in July. This week’s news included a drop (-0.2%) in the value of total electronic card transactions in July, although core retail spending rose 0.7%. In property, Quotable Value NZ reported the slowest annual growth in house prices this year (+4.1% in July from a year earlier).

Recovery less robust. Despite weak consumer demand, retail spending, housing turnover and business investment, the RBNZ lifted the OCR again in July. This nudged up mortgage rates and (more troubling for export-led growth) the exchange rate. June-quarter export receipts were 17% ahead of the same period last year, but 12-months receipts were 5.5% down from the previous June year, when they were 11% below the year to June 2008. The world has not recovered as robustly as had been hoped, NZ exports are reliant on the strength of the Australian and Chinese economies, and the China trade is built largely on dairy and forestry commodities.

Farmers happy for now. True, farmer confidence (on Rabobank measures) has increased for the fourth consecutive quarter. Sentiment improved across all sectors, reportedly lifted by rising commodity prices and improved overseas markets/economies. It was particularly high in dairying. But Fonterra looks likely to review its payout forecast for the 2010-2011 season as dairy commodity prices slide and the currency remains strong. The ANZ Commodity Price Index recorded a second successive drop in July and the currency is eroding gains from improved wool prices in export markets. The average price per tonne of wool was 8.8% down to below $4500 this June year. Sheep and beef farm profitability is being squeezed and the currency-crimped average farm-gate price for lamb fell $8.43 from last season, wiping out gains from record lambing percentages last season. Patchy indeed.

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