Thursday, 4 February 2016

Business Environment 2016

As we settle back into our work after hopefully a little bit of time off over the holidays it is useful to consider a broad brush assessment of external and internal economic factors as they will affect business in the coming year.

On balance the businesses of Christchurch and Canterbury are well placed, to operate in a positive business environment involving increasing certainty and hopefully prosperity. It is however a mixed bag. Dealing with the macro picture first, we can expect exchange rates to be more conducive to supporting exporters. That is important for a region like Canterbury being so dependent on export income. The offset of that is potential for increasing price pressures on imports. However, even that is mixed given the downward pressures on fuel prices and how important the cost of imported fuel is to our ongoing economic activity.

Interest rates can be expected to remain low throughout 2016. We are into a new era of a locked in low interest rate regime, which is good for borrowers and not so good for savers. Linked to low interest rates is inflation, currently continuing at record low levels with no significant signs of any upward pressure.

We can expect continuing pressure on dairy prices which does have a significant impact on our overall economy. On the other hand other exported products, particularly some meat products, are holding up well. We should be wary however of continuing volatile climatic conditions and the potential impact that will have on farm earnings and export volumes. Once again current climatic conditions are clearly demonstrating the importance of certainty of water supply which underpins investment in irrigation. Tourism, another significant export earner is showing significant upside, particularly with increased visitations by free independent Chinese travelers. This will continue to increase over 2016, despite some concerns about the Chinese economy. It will put pressure on South Island infrastructure generally and we need to be aware of that and prepare for it.  

From a Christchurch city perspective the rebuild in now tracking with more certainty than ever. By the end of this year SCIRT will have finished its horizontal infrastructural commitments, the central city retail precinct will be up and running and residential rebuild will be continuing at a pace. I predicate that 2016 will be the year that we complete 50% of the required construction in our city. That is a significant milestone, but of course, it also means we still have 50% to go and a lot of spending and investment yet, in the regeneration of our city.

Underpinning the $100 million a week being spent specifically on the rebuild we continue to have a strong local economy driven by increasing service industry activity, a robust manufacturing sector, strong retail and the indirect benefits coming from the rebuild of Christchurch city. Aside from the private sector commercial activity we have increasing confidence in education at all levels in our community with some good signs with respect to overseas students returning to secondary and tertiary level education in Christchurch and bringing valuable foreign exchange with them.

Our health sector is a very important contributor to our economy with Canterbury District Health Boards budget well in excess of $1 billion and the demand on the whole sector being higher than ever. We must always remember as participants in the business sector the psycho social consequences of the earthquake are still playing out and will continue to impact our people as they go about their business. That issue will require additional resourcing.

To a greater or lesser extent will are all dependant on business activity whether it’s through its ability to generate employment, to pay taxes to service our public sector needs or to generate ongoing wealth. The interdependancy between a healthy community and a healthy business sector is compelling. We are in a good space in Christchurch and Canterbury and we can be confident as we go into 2016.

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