NZ’s Muslim economy: “Mostly Sunni, only partially Shiite”

If you believe the comments of the erudite chaps enlisted to talk about New Zealand’s economic situation at the CAANZ/ANZA seminar ‘Nurturing the Green Shoots’, it’s all good news for the marcomms industry in 2010 and the years ahead.

Brendan O’Donovan, chief economist at Westpac, offered an interesting, quick-fire and graph-filled summation of the economic landscape and its affect on the advertising and marketing sectors. And things are looking up: it’s pro-cyclical, so, as last year showed, when things are bad in the economy, they’re usually much worse in the advertising sector. Conversely, in the boom times, it goes much faster than the economy.

In general, a one percent change in real consumption will lead to a 2.5 percent change in real advertising spend in the short term. But despite what advertisers might like to think, he says consumption leads to advertising, not the other way round.

“You do influence what the spending is on, so you’re not completely redundant,” he says. “But what the consumer is doing is the key to your industry.”

Compared to the 14 percent drop in overall advertising revenue last year, O’Donovan is expecting double digit growth in ad spend in the next few years, up from $2.045 billion to $2.5 billion by 2012.

So is the recession U-shaped? W-shaped? V-shaped? As far as the bounceback goes, he says New Zealand, on average, has a recession every five-and-a-half years (there have been 23 slowdowns since 1870, according to his research). And there have been strong economic rebounds following each one. These have been even stronger when there is no big supply shock (like the oil crisis) or domestic banking crisis, neither of which occurred in this case.

He says history, economic growth, the increasing difficulty of finding skilled labour and also rising housing consents tell us and that things are pretty strong.

Last year only 14,000 new houses were built. And he says it should’ve been closer to 28,000. It’s unsustainably low, so building and construction will be a multi-year growth category, he says, simply “because we haven’t got enough houses.”

Durables and appliances have had a big rebound recently, as they’re often the first thing purchsed when consumers start feeling better. And he predicts some big marketing messages leading up to the GST increase: in 1988-89, durables consumption jumped 10 percent the quarter before GST changed (and dropped 10 percent the quarter after) and he predicts a three percent rise in overall spending, which will undoubtedly make for some aggressive targeting in July, August and September.

Jim Bolger was ahead of his time when he said many years ago that we’re part of Asia. And that’s increasingly true: exports to China, the rest of Asia and Australia are growing, while exports to developed nations are dropping off. The danger is that with China now being so important to the country, it’s also a risk, as the “baby bubbles” are already starting to form. Access to funding is also becoming increasingly difficult, particularly given what’s happening in Europe, and especially with Greece and Portugal showing signs of what could be “stage two of the financial crisis”.

Overall, he says, it’s a Muslim outlook: “Mostly Sunni, and only partially Shiite.”

Nevil Gibson, editor of the National Business Review, looked at some examples of industries that have been powering ahead, despite the recession, and concentrated largely on the food sector. The mass media likes to give this sector a hard time, he says, with regular front page stories about maggots in burgers, mould on pancakes and recipe changes in chocolate bars. But the fact is, fast food retailers have been booming and struggling to keep up with demand.

McDonalds is upgrading and adding stores in New Zealand like there’s no tomorrow and it’s similar positive news for Restaurant Brands, whose share price is at a seven-and-a-half year high.

Retail figures do show lower spending, but he postulates this might be because, with lower prices on groceries, liquor and appliances, consumers are currently getting more for their dollar.

Car sales (as well as imports and registrations) are also on the up, although that’s coming from a very low base. Spending on cars and fuel is 21 percent of total spending and it’s been rising at one percent a month since March last year, making for an increase of 12.3 percent in a year, the most significant rise in the retail sector. And Gibson says car sales will continue to rise as confidence increases.

For Gibson, the merger of Kraft and Cadbury signifies an increasing presence of American multinationals in the region, particularly Pepsico, which owns Bluebird and has just released its Doritos range in the country.

Gibson finished with a quote from George Bernard Shaw: “The power of accurate observation is commonly called cynicism by those who have not got it.” And if the observations of these two are accurate, the marcomms community will be breathing a nice, big, profitable sigh of relief in 2010.

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