Light at end of recession tunnel

Business Day

Last updated 15:13 17/05/2009

As redundancy announcements continue to roll in, caution remains as to how much light is at the end of the recession tunnel. Most pundits are being careful about predicting when there may be a return to job stability, but there are some positive signs, according to Business NZ.

Chief executive Phil O’Reilly said it was encouraging to see the BNZ Capital-Business NZ April survey of the manufacturing sector showing the rate of contraction in the sector was at its lowest since September last year. Manufacturing was traditionally one of the first sectors to feel the heat of recession, but also one of the first to come out of it, Mr O’Reilly said.

That was the result of companies cutting down on supplies when dark clouds were on the horizon, and then needing to restock to take up any increases in customer demand.

It was still unclear whether the positive indications in the sector were sustainable, but it suggested the recession could be near a trough. “Most businesses I’ve been talking to are feeling confident about the future — but they’re certainly not taking any happy pills,” he told NZPA.

New Zealand had a “practice recession” about a year before the financial meltdown, due to high interest rates, fuel prices and housing prices etc, he said. “So, perversely, the fact we were in this recession before the rest of the world helped a number of companies to restructure and get rid of costs and get themselves sorted out before the rest of the world fell over.”

That meant meant restructuring went on in a relatively benign environment, and when the global recession bit, some businesses here didn’t fall as hard. Another “perversity” was that New Zealand generally sold what people needed. “No one wants plasma televisions right now … or BMW motorcars, but people still want food, and the New Zealand economy is still solidly based on food”.

The perversity was that for years there was talk about the need for New Zealand’s economy to become more hi-tech. That had never really eventuated, but no one was losing sleep over it in today’s climate. As far as unemployment went, at around 5 percent the numbers were “ugly”, but not as bad as figures in other Western countries.

Council of Trade Unions (CTU) secretary and former economist Peter Conway said taking a “not that bad” attitude to the unemployment level was disappointing. It equated to a huge number of New Zealanders out of work and struggling. In terms of jobs, he said there was always a long lag between recessions hitting and lay-offs, and he predicted there was a lot more to come in terms of redundancies.

While the recession had left the National Government in a difficult situation when it gained power last November, Mr Conway said he felt its response to the hefty blows being dealt to workers across the country needed more urgency. He said he wanted to reserve judgment until after the May 28 budget, but the CTU wanted to see action in three main areas including job creation.

“There could be more done there in terms of Taskforce Green, home insulation, more rapid spillovers from infrastructure, etc.” Workers also needed assistance in job transition. “Our concern is that as unemployment goes up and vacancies go down the matching process becomes more difficult.”

More assistance was needed with study, relocation in some cases, and more flexibility was needed around the benefit system. “Otherwise, what they are saying really is that those people can just stay on the dole for as long as the recession takes.” Mr Conway said the nine-day fortnight was one helpful initiative in terms of addressing job retention in the private sector, but at the same time the public sector was being thinned out.

It’s an issue that has riled the Public Service Association (PSA), which says the Government is going too far in its commitment to cap public sector jobs. National secretary Brenda Pilott told NZPA an estimated 1400 jobs were cut under the first six months of National’s reign.

“This makes a mockery of the Government’s policy of capping the public service . The reality is the Government is cutting — not capping — the public service.” Recently announced plans by the Ministry of Social Development to trim 200 jobs would add to hundreds more shed by not replacing staff who leave, she said.

“This is despite demand for social services increasing as the recession pushes up unemployment and puts people and businesses under mounting financial pressure.” Several other government departments were also significantly affected. “The private sector is losing jobs because customer demand is falling due to the recession.

“In the public sector the recession is pushing up demand for social services and yet the Government has embarked on a campaign of cutting public sector jobs,” Ms Pilott said. But State Services Minister Tony Ryall said New Zealand was facing increasingly tough economic times.

“In the private sector jobs are being lost every week and the taxpayer-funded public sector recognises it has to carry its share of the burden. “We cannot carry on as if money is falling out of trees with increasing government surpluses, because the exact opposite is happening,” Mr Ryall said. Mr O’Reilly said one silver lining in recessions was that more people chose to study, which could be beneficial to the economy five or 10 years down the track.

“You would want to make sure that government funding decisions don’t get in the way of that.” He said while there would obviously be a cautious approach to the budget in terms of spending, it was vital that there were significant initiatives to spur on innovation and education .

“I’m not yet seeing a coherent plan around, for example, how we build innovation and skills.” It would be concerning if there was still no solid foundation in place in the next four or five months to confront that issue, Mr O’Reilly said. NZPA