Rock bottom to rock star

MATT RILKOFF
Last updated 05:00 11/01/2014
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Business is looking up for Taranaki in 2014.

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After six years of breath holding and belt tightening, the economy looks to finally be on the mend. So why isn't everyone ready to cheer? Matt Rilkoff reports.

In an office in Waiwhakaiho on the outskirts of New Plymouth, Richard Ellis hopes for news from the deep.

"A significant find offshore. That would be good," says the managing director of Fitzroy Engineering.

"Right now there is a lot of hype about all the oil and gas exploration but they haven't found anything. The drilling doesn't affect us. A big find is what we need."

A big find of oil or gas will bring work and it is work, not predictions of growth, that will give him the confidence to say the global financial crisis is over, wages are going up and the good times are back.

"We are cautious right now," he says.

The localised caution is not isolated. On Wednesday, Amy Richardson, the owner of oil and gas recruitment firm Inspirec, said opportunities were fewer now than a year ago and dairy farmers were keenly aware there was still five months of uncertainty standing between them and a record payout of $8.30 kg/MS.

But that nervousness is just a squeak in the face of the hype sweeping the nation in these first days of the new year.

On Tuesday, HSBC chief economist for New Zealand Paul Bloxham predicted this country would be the "rock star" of 2014.

On the same day a real measure of confidence was released with the Motor Industry Association (MIA) stating more than 113,000 new vehicles had been registered in 2013, the highest number in nearly 30 years.

A month before this the OECD's Economic Outlook picked Gross Domestic Product to rise to 3.3 per cent this year, compared to an average growth of 2.3 per cent for OECD nations.

This is coming from the construction boom in Christchurch and Fonterra's forecast 2013/2014 payout and a surge in business confidence. In Taranaki it is at its highest levels in 15 years.

"We are in a very different kettle of fish than this time last year," acknowledges Taranaki's Federated Farmer's president Bronwyn Muir.

"But we tend to know, as farmers, that we are going into a surplus now, but we know we will need that surplus in the future. The seasons tend to balance out like that."

And while there is confidence now, there is still some months to go before the end of the season. A dry spell now could change everything, cutting the payout and sending farmer's cheque books back into their back pockets.

But even if it all goes as planned the record payout forecast comes at a time when the cost of producing milk is also higher than ever, meaning healthy payouts do not necessarily mean equally healthy profits.

"The payout needs to be where it is at now or better in the future to give farmers good profitability going forward because we are looking at rising costs in the future, especially around environmental costs," says Ms Muir.

In New Plymouth appearances can also be deceiving, says Taranaki Real Estate Institute of New Zealand spokeswoman Maree Gendall.

The latest figures from QV statistics show median houses prices have increased in the city to $343,184 from $324,197 a year ago but that increase may simply be down to a lack of supply rather than a confident market.

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"You hear that there is higher spending and more confidence but I still feel people are being conservative when it comes to changing houses. Certainly there are some sectors that are buying but I think it's more steady as she goes rather than another boom or bust time. I think people are still playing it safe," she says.

New Plymouth businessman, property developer and multimillionaire rugby investor Philip Brown is picking the conservative approach to hang around for a while yet, despite the economic indicators pointing to good times ahead.

"In business you ready yourself for when the recession is over. That is the point where the growth is and I think we are one to two years away from where we were 10 years ago."

Wage and salary earners may therefore be jumping the gun to expect a healthy pay rise this year. For most people the bigger bank balance is 12 to 18 months away Mr Brown believes.

Not everyone is waiting. Some businesses, through both good luck and good management, are already out of the financial crisis and looking to aggressively expand.

One of those is Port Taranaki, currently booming thanks to a massive increase in shipping from unprecedented oil and gas exploration. Things may soon get even better as the activity means the chance of a significant oil or gas find is better than ever, which could see massive development at the port and bring in the cash to pay for the much longed for marina development.

"I think 2014 will be, probably, the best year this port has had in the 12 years I have been here. We will be busy across a number of fronts," says chief executive Roy Weaver.

That activity will include the demolition of the buildings on the former Contact Energy power station site, giving the port much needed land to expand its service and build its capacity.

"With 18 hectares to develop it's about the port becoming more vibrant, industry becoming more vibrant. It's capacity building for the community and go forward and making it more capable than it is now," Mr Weaver says.

In Eltham, John Burley, of Carac Innovation Engineering, is constantly working on increasing his company's capacity. Currently employing around 45 people he says things are so good he is aiming to double the size of his operation in the next 12 months.

"I cannot believe how good it is. We have a huge amount of orders. It's better than last year. Certainly things to Australia haven't been going so well, but we've got huge orders going into Canada and Malaysia."

Things are coming right, he says, and the proof is not only in the farm machinery orders but the surge in boat-related work.

"As you know we do a huge amount of work for boaties on their boat trailers. That is disposable income. When money is tight they don't spend money on their fizz boats," he says.

"But the last four months have been as good as it was in the 1990s."

A RESURGENT ECONOMY - SO WHAT?

There are so many factors determining how much an individual is paid that pay rises can be had or not had in both good economies and bad.

However, if a company is going well, business leaders say meaningful wage increases may start coming when the books are done at the end of the financial year, or about six months from now.

The Reserve Bank of New Zealand sets the benchmark interest rates for the country. This rate determines the interest rates banks offer on mortgages.

During the global financial crisis the bank slashed the benchmark rates to reduce the cost of borrowing and stimulate the economy.

Now the economy is recovering the bank is expected to move to reduce this supply of cheap money and raise its 2.5 per cent benchmark rate on 30 January.

This will immediately make borrowing more expensive and inevitably eat into a borrower's disposal income.

Hopefully. When the Reserve Bank increases its benchmark rates it forces an increase in market interest rates. The practical result of this, over time, is people are inclined to spend less on goods and services because higher interest rates give people an incentive to save money.

When people save more and spend less, there is less pressure on prices to rise and therefore inflation pressures tend to reduce, meaning prices of goods and services remain stable.

So by making it more expensive to borrow the bank also increases the incentive to save which helps keep the price of living under control.

- Taranaki Daily News

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