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Speaker 1: Back to this business of our economy. Couple of key

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Speaker 1: measures here, housing and confidence both have taken a bit

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Speaker 1: of a hit in the latest day and Z data

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Speaker 1: as far as business confidence is concerned, down nine, as

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Speaker 1: we talked about with Andrew, So we're in contraction territory.

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Speaker 1: As Chief Economy Sharon Zolna is back with a Sharon

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Speaker 1: good morning to you.

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Speaker 2: Good morning. Do you know person under also called Sharon Fruit?

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Speaker 1: Didn't? I didn't know that. Where'd you get that from?

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Speaker 2: Oh somewhere in my childhood.

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Speaker 1: I'm not sure I would remember it, Yes, exactly. A

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Speaker 1: little bit of no little bit of noise around these

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Speaker 1: numbers or not you're confident with them.

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Speaker 2: Well, we've got the normal sample size. It's always a

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Speaker 2: bit dodgyer when you start splitting into into smaller groups.

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Speaker 2: But so basically the story is that the business Confidence

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Speaker 2: survey it fell a lot in the early in the

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Speaker 2: later months sample compared to earlier in the month. And

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Speaker 2: in between, of course, we had all the tariff noise

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Speaker 2: in the market turmoil, so the business confidence, investment tensions,

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Speaker 2: employment intensions really across the all lower in the second

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Speaker 2: half of the month. So a very consistent message. So

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Speaker 2: I think.

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Speaker 3: I think there definitely is more than just noise exactly,

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Speaker 3: which is why I asked, is there a hint, potentially

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Speaker 3: a panic in here that might rectify itself in a

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Speaker 3: later date if things don't turn out to be the

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Speaker 3: end of the world.

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Speaker 2: Oh, panic will be too strong, but it is absolutely

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Speaker 2: possible there's a bit of a knee jerk reaction that

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Speaker 2: might not last. So that's the real question. I think,

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Speaker 2: will this actually affect decision making and will it just

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Speaker 2: affect it for a couple of weeks or will it

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Speaker 2: actually be something more lasting? So obviously, the only time

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Speaker 2: will answer that question.

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Speaker 1: Indeed, all these companies that are about this global, all

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Speaker 1: these companies that are abandoning guidance now because they have

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Speaker 1: no idea what's going on? Does that make life more

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Speaker 1: difficult for us?

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Speaker 2: All? Well, certainly does make it more difficult for them.

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Speaker 2: In New Zealand's case, I mean the actual direct tariff

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Speaker 2: on us ten twelve percent of very exports, really of

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Speaker 2: our goods exports. So it's not a game change of

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Speaker 2: for the economy, but for some individual companies of course

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Speaker 2: it's a very big wheel. But the main chain all

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Speaker 2: through which and Young could be effected the slower growth

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Speaker 2: and including in China of course, our biggest export partner,

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Speaker 2: impacting our commodity prices and export more generally, but also

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Speaker 2: that confidence channel that it could just be firms just

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Speaker 2: delay their investments and employment plans. So of course we

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Speaker 2: don't want to have to wait very long to get

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Speaker 2: another read on that confidence channel. But I'll be looking

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Speaker 2: at particularly will that impact last, but also will we

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Speaker 2: start to see in the impact on what firms are

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Speaker 2: saying they're experiencing as opposed to expecting, because that's where

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Speaker 2: the rubber really hits.

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Speaker 3: The race exactly.

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Speaker 1: What's your sense what are your spider senses telling you

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Speaker 1: on recession and all this talk about it, Well, I.

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Speaker 2: Mean, the economy is recovering, absolutely, but we have revised

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Speaker 2: down our forecast partly because of this uncertainty thing. So

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Speaker 2: basically recovery is going to take a bit longer and

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Speaker 2: need a bit more of support from mountry policy. We've

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Speaker 2: put a couple of extra cuts, oh cr cuts in

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Speaker 2: our forecasts in our CEOs are going to two and

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Speaker 2: a half, but still recovering. Obviously, there is a scenario

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Speaker 2: where it turns more pair shape than that. With the

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Speaker 2: Reserve Bank here has pointed out that they're in a

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Speaker 2: very good position to cut rates quickly if they needed to,

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Speaker 2: and they are particularly compare to the Federal Reserve and

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Speaker 2: the US who's facing a very nasty trade off between

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Speaker 2: the inflationary impacts of the tariffs and the growth impacts

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Speaker 2: now here in New Zealand, of course we haven't put

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Speaker 2: new tariffs on, so it shouldn't be inslationary here. But

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Speaker 2: it was interesting in our consumer confidence survey we actually

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Speaker 2: saw consumers inflation expectations jumped half a percent, so it

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Speaker 2: was a bit of confusion out there, but businesses inflation

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Speaker 2: expectations were steady as a rock, so I think businesses

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Speaker 2: understand it.

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Speaker 1: So that's interesting. So if you expect inflation to rise,

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Speaker 1: does it or if you just got it wrong, and

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Speaker 1: if it does, then this minimal to no growth. That's stagflation.

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Speaker 1: And is that real?

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Speaker 2: Businesses inflation expectations generally matt and more than households because

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Speaker 2: they're the ones who set prices, I would say, how

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Speaker 2: sohold inflation expectations matter more if the economy is running hot,

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Speaker 2: because it would impact wage demands, for example, it would

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Speaker 2: make it easier else equal for firms to pass on

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Speaker 2: price and cost increases into their prices. But with the

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Speaker 2: economy still in a fairly subdued state, I wouldn't think

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Speaker 2: that those higher consumer inflation expectations will will make much

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Speaker 2: difference to anything, and they may not last.

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Speaker 1: OK. Do you have a view on the Willis budget

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Speaker 1: in the sense that the seems to be some debate

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Speaker 1: among economists if she cuts radically in terms of government

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Speaker 1: expenditure that hurts an economy as opposed to priming the

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Speaker 1: pump when we need it most, Is that fair or not?

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Speaker 2: Well? I think as she's playing long game, that a

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Speaker 2: longer game anyway, and that's you know, we are running

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Speaker 2: quite structural deficits that aren't sustainable and so we need

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Speaker 2: to do something about that. I mean, it will be

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Speaker 2: pro cyclical and so far as you know, flowing fiscal

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Speaker 2: spending while the economy is flowing. But we didn't have

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Speaker 2: to don't have a lot of choice because we had

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Speaker 2: expansionary fiscal policies in the economy was booming. So this

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Speaker 2: is the other side of that. You know, the fiscal

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Speaker 2: policy was unhelpful nuntal policy in that regard, and so

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Speaker 2: far was adding to demand. At time, and private demand

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Speaker 2: is already very strong. So now now the cost of that,

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Speaker 2: and one of the costs of that is that we

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Speaker 2: have to have title fiscal policy in the economy. All

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Speaker 2: of it could probably handle a bit more fiscal stimulus,

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Speaker 2: but you know, there we're an environment where I think

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Speaker 2: there's going to be more focus on fiscal balances, on deficits.

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Speaker 2: Our deficit, our fiscal debt is higher than it was.

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Speaker 2: It still looks pretty good in an international comparison, but

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Speaker 2: people are starting perhaps to look for alternatives to the

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Speaker 2: traditional place of parking your money in the US government debts.

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Speaker 2: So if we can show them responsible fiscal numbers, then

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Speaker 2: hopefully we can get the specty tiny fraction of that

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Speaker 2: global money that's maybe looking to diversify a bit more

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Speaker 2: than previously, and that would be a win for.

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Speaker 1: Our tax pack, wouldn't it be known? It's nice to

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Speaker 1: talk to you appreciate the insiders all ways. Sharon's on

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Speaker 1: A and Z chief economists with us this morning.

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Speaker 3: For more from the Mic Asking Breakfast, listen live to

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