Michael’s quarterly view – is this our winter of discontent?

I don’t think that we are facing the upheaval that the UK did in 1978-79, and while there is no Margaret Thatcher or Richard the Third waiting in the wings, there are some interesting parallels. Housing and the failure of Kiwi Build, ongoing industrial action, and a changing consumer sentiment will impact the driver of business growth.

Most businesses are now into the second quarter of the financial year, and most businesses will have an inkling whether they will hit their budgets for the remainder of the year. If they were forecasting growth or a static rebuilding year, what can be done to come through the year with the least downside?

As the weather turns and the temperature gets colder, businesses will be tested. So, unless you are selling firewood, what are the signs you should be looking for?

All businesses need capital to function. Where is your growth capital or working capital coming from? Local banks are facing rule changes, and some uncertainty. This is never good for a bank manager’s disposition. While the changes are being labelled tweaks, there is no doubt bank customers will be paying more. You will be facing extra costs to fund your business.

What are your customers saying or doing that is different to the last 12 months? And, are you able to hear what is being said or not said by your sources of revenue? While it is becoming a cliché, businesses need to be tuned into changes in behaviour, and buying patterns and signals.

When is the best time to innovate? If you are asking that question, the ship may have already sailed. If you are not looking at innovating the way you do business, you will be left behind.

What is the mood of your business? Staff are key to delivery, and happy staff are key to profitable delivery. If your business is facing increased staff turnover, and challenges owners and managers, you will need to act fast. Look for:

  1. Changes in cost and ease of getting finance
  2. Changes in customer behaviour
  3. Are you innovating? When was the last time you reviewed your business?
  4. What is the mood of your staff and company culture? Avoid rigor mortis

Our advisory team can help businesses identify and act to address these winter fundamentals.

So what does the big picture look like in June 2019?

(click the image below to view the rest of the chart numbers 4-11)


  • China relationship
  • Housing NZ & Australia
  • Investor confidence / Global stock markets
  • Political landscape
  • Retail confidence/Government procurement, e.g. NZDF, NZTA
  • US/Trump
  • Europe/Brexit – deal/no deal
  • Australia – political
  • Asia (non-China)
  • Weather & All Blacks/RWC
  • Job security, NZ cost of living, education, health

June/July 2019 Observations.

In March we signalled the likelihood of increased industrial action driven by unions seeking payback for funding the labour party. The teachers union seem to have settled for now.

The government’s decision to allow greater government borrowing was always going to happen under this government as part of the borrow more and tax everything strategy to pay for kindness, but not transparency or free speech. The death of the capital gains tax was always going to happen, proving that you can’t fool all of the people, all of the time. The recent ‘fig leaf’ offered to the farming community for greater protection for farmers in financial stress, is this Government expecting to put farmers in financial difficulty in the near future?

Inevitable there will be more, and resulting increase in inflationary pressure. The reserve bank in their wisdom have lowered interest rates, with little wiggle room should further headwinds impact the NZ economy. I don’t see negative interest rates in our future.

This Government is acting like Nero, fiddling while Rome burns. Procurement by Government is important in keeping the economy moving, and a number of agencies have slowed down, or paying slower.

Kiwi Build is the disaster that everyone expected it to be, and should be a yoke around the neck of the Government, but it won’t be – see adage above. This highlights the difference between the public and private sector. As Bruce often says, “A dog is a dog, and dogs will always bark.”

As NZ economic growth slows, a negative feedback loop is in danger of being created, i.e. a decrease in consumer confidence, coupled with reduced confidence in increasing house prices which reduces the perception of financial stability.

Retail going into winter is always tough, it appears to be tougher this year coupled with ongoing increases in the cost of living, that are not being matched by any wage increases.

Fonterra is still going through its strategic realignment, and has increasing volume and revenue, but lower margin. The forecast EPS is down by 50%, and the milk gate forecast is up for the current season suggesting the business is paying more for raw milk, but making less from processing and selling it.

International trade tension grows, not only with the US and China, but also with India and the US. As is typical of Trump’s negotiating style pointing people to the abyss and asking them to peer over takes on new meaning as Trump insists a glance is not long enough – maybe assuming everyone’s attention span is as short as his. Beijing seems to have ceased reference to their ‘made in China 2025’ programme as a nod to the need to engage with the Trump administration in a less inflammatory manner which only highlights the Chinese State subsidy programme as a major issue that needs to be resolved in the minds of Washington law makers.

The good news is that the Government hasn’t made the situation with China worse following the Huawei issue. I do note that Chinese tourism is down year on year, which recognises that Chinese tourists have choices. Asian gambler ‘whale’ numbers at Sky City remain steady and lucrative.

Europe, the UK and Brexit seems no nearer to providing any certainty. Imports into the EU are rising faster than export from the EU, so there will be more economic pressure as the weather heats up. And, as far as Boris Johnson as the next UK Prime Minister, Donald Trump will be relieved of the distraction.

The local property market appears to be in the annual winter stall, however the reserve bank will have hoped to keep the pulse beating faster with the latest rate cut.

The usual hype we see in Rugby World Cup year hasn’t kicked in yet, which may suggest an apathy towards the All Blacks. I can’t believe this to be true, and am sure the main stream media will engage, and put aside their hatred of Spark Sport and get the country behind the men in black.


I’ve looked at various factors including local sentiment and international factors and sentiment from various sources. We have then made assumptions as to importance and influence and, hey presto an index we can report and make comparisons on over time.

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