Posted on May 01, 2018
I grew up with the understanding that the difference between the two major political parties was that Labour squandered our economy, and National put it back together. In those days there were only two real political parties – the minor parties were the likes of Social Credit, and no one could understand their policies, so only the majorly dis-affected voted for them.
Now of course it is the minor parties who get to choose the government, and thereby get the baubles of office. And influence the big spend-up.
My belief in what I was taught in my youth has wavered at times. Rob Muldoon instituted the very socialist Domestic Purposes Benefit, which has ultimately cost taxpayers billions. And Roger Douglas was a free marketeer in selling off all those loss making government departments. The world was surely turning upside down. But the steady hand of Bill English post GFC restored my faith in the fundamental laws of political nature I was taught as a child.
And now in 2018 we can all breath again. We can have no doubts that reality has been restored and all is right with the world. For the present government is surely squandering away our economy.
The irony of this is that irrespective of whether the hole in the budget is $11.5 BN or not, the massive spend up will be good for business in the short term. Spending all that money, helps the economy go round. And if it is a little inflationary – that’s even better.
And that was the corollary of the “Labour squanders the economy and National puts it together again” understanding of the economy – that Labour is actually good for business, if bad for the country.
How it will play out this time is becoming evident. In an increasingly connected global economy, external events are certain to play more of a role in the direction and strength of our economy than in the past. The impact of shonky home lending half a world away that lead to the GFC proved that no island is an insular economy.
U.S. interest rates are steadily rising, and set to continue that trajectory. That will both depress the kiwi, and thereby influence inflation, and also force domestic interest rates up in order to retain some competitiveness. As one of the major influences on industrial property yields is the prevailing interest rate (both domestically and offshore), the expectation is that yields will parallel the rise in international interest rates.
And if we subscribe to the Labour is good for business theory – because of all the borrowed money they pump into the economy – then demand will remain strong for industrial property by occupiers.
Accordingly we are picking vacancy rates to remain low, but investment yields to creep up. Time will tell.