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Slowing economy not all bad news

Slowing economy not all bad news

A LOOMING downturn in the economy could spell opportunity for the channel.

New Zealand is heading for an economic slowdown that will see a rise in inflation and interest rates, according to Rodney Dickens, economist, group strategist and head of research at ASB Bank.

But the outlook is not all gloomy for the technology industry, says Dickens.

Technology could address many of the problems caused by a slowdown in the economy, he says.

The biggest issue business faces today is a labour shortage, as the Reserve Bank’s current go-for-growth monetary policy has created the tightest labour market in 20 years, which has kicked off a wage-price spiral, he says.

The skills shortage is reflected in above-average pay increases as workers have more bargaining power.

“We are seeing 10 to 20% pay increases,” says Dickens, adding that the average pay rise is now around 36% in the technology industry.

These increases result in a rise in the cost of goods and services as companies attempt to recoup the additional wage costs.

“For most firms labour is the single biggest cost,” says Dickens.

Labour is also a driver of inflation, but the true inflation rate is hidden by the strong exchange rate of the dollar, says Dickens.

“When the currency falls next we could face headline inflation of 4 to 5%,” he says. This could happen in 2007 or 2008, he says.

“The battle against inflation has just started.”

This may sound like a horror story, but there are some bright points, says Dickens.

One of these is the uptake of technology, which can help companies cope with fewer staff.

Brett Roberts, chief technology officer at Microsoft New Zealand, says businesses need to prepare for a slowdown in the economy now.

“CIOs and IT managers need to be smarter about what they spend on,” he says.

Investing in IT can help companies reduce costs and increase revenue, but also boost staff and customer retention, which will have benefits in an economic downturn, says Roberts.


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