Federation chief maintains “upbeat” outlook

by Iain MacIntyre

NZ Contractors’ Federation (NZCF) chief executive, Richard Michael believes there is strong reason for the local construction industry to retain optimism despite the current international financial downturn. Although accepting the fallout from the United States’ sub-prime mortgage “debacle” may affect prosperity for several years to come, he says it does not appear to have resulted in a global meltdown of the banking sector.

“I think most global commentators would say now it seems unlikely there is going to be some wholesale failure of the entire economic system, which would throw us into a 1930s’ depression,” says Mr Michael.

“We’ve learned some lessons since that time and the measures that have been taken, while they haven’t cushioned us entirely from the downturn, have saved our financial system.
“My personal view still is that in New Zealand the economy will bottom out sometime in the middle of next year and after that we will start to see an improvement in our fortunes.

“It seems to me that certainly in the civil construction, and to a lesser extent in the commercial sector, forward orders will probably take a number of companies through to that point anyway. So, while they will likely be short of forward work come next year, hopefully they are still working.”

However, Mr Michael does predict the residential sector may take longer to correct, both because there has been an oversupply of capacity in the middle and top end of that market and because of the new issues surrounding securing credit.

In that regard, he says while the infrastructure sector, which is mostly funded by local or central government money, will be less affected by the credit crunch, he says it is already impacting other sectors.

“The knock-on effect of the sub-prime issue is that credit has been totally stopped. A ginormous valve, full-open for the past five years, has stopped entirely.

“But if you’ve got cash, you are in a very rosy position. Those developers and companies that have deep pockets are going to see lots of opportunities to buy assets and resources a hell of a lot more cheaply than probably any time in the past ten years.”

Overall, Mr Michael says his outlook for the construction industry remains, “still pretty upbeat”.

“I go back to the point I made [at the recent NZCF annual conference], which is that the fundamentals of the New Zealand economy are still strong. While commodity prices are off significantly, they have come off very high bases and most of the outlooks for commodity prices are looking for a pretty strong upswing at the end of next year.

“So I’m also hoping immigration will be a strong driver of our economy.

“While we hear a lot of doom and gloom from the journalists and politicians, actually our books are in pretty good shape compared to a lot of economies around the world in terms of government debt and those sorts of things.

“So, for a whole lot of reasons, I think our national economy will weather the storm better than a lot of countries. You have to be prudent and careful with expenditure, but those who are still looking for opportunities and still have the resources to explore those opportunities are going to have some really good chances to do well over the next 12 months.”

 

The Issue of Emissions

By Richard Michael, chief executive, New Zealand Construction Industry Council

The Government may have deferred its carbon emissions trading scheme for transport until 2011 – but that is no reason for the construction industry to become complacent.

While seeing the date recede from January 2009, will have resulted in a collective sigh of relief, we need to fully use this extra time to maximise reduction of fuel emissions.
While the Government may have given us two years’ breathing space, increasing numbers of clients – many aiming for carbon neutral status – will be demanding accountability around emissions and the industry needs to be proactive in its approach at all levels.

While an increase in fuel prices as a result of emissions trading is still some way off, it will be interesting to see the make-up of Parliament after the next election. A strong Green Party component is likely to be a powerful advocate for the scheme.

High use of fuel is unavoidable for our industry, and economic considerations
have already driven reductions in consumption because of the impact of costs on the bottom line. read article