While input costs keep rising and prices can’t rise, something has to give, he told the Grain and Seed Forum at Lincoln.
Global trends and the outlook have put NZ in a unique situation.
“What is really causing the damage is supply constraint.
“There is simply not enough employment to grow and with the available pool of labour we do have left it’s unlikely we can grow (GDP) 2.5%.
“Input costs are rising violently and we’re operating in an environment where competition is so high we can’t increase prices.
“The standard economic response when input costs go up is to put prices up. When that can’t happen something has to give. It’s a very unusual situation,” Toplis said.
“What scares us all is the leading indicators we look at tell us our forecast (2.5%) is too optimistic.
“In economic growth what business tells us is that growth will fall in some indicators to 0.5% – so close to zero it’s recession.”
Key factors of the slowdown include a declining population and capacity constraints in labour and infrastructure.
“In productivity growth if we lose population we lose growth and that’s the single biggest driver in falling GDP.”
Political uncertainty both on and offshore pose a serious problem in delivering certainty to invest.
Toplis cited “Trump, Trump, Trump” as a key global issue alongside the United States-China trade war, China weakening, Brexit, a lack of recovery in Europe and Australia conceivably the biggest concern.
Any incentives to turn land into dairying have gone – environmental costs are set to soar, water costs will rise and insurance is a huge risk.
“We have large areas of NZ becoming completely uninsurable so there’s no opportunity for growth.
“Anything you plan to do, find out if you can insure it first,” he cautioned farmers.
“Dairy is our single biggest export and we have become accustomed to a 4% volume growth year-on-year but that’s now forecast to be 0%.”
Tourism at number two is also trending a slow-down.
“Global growth is actually in a cave. The risks are rising dramatically and that’s scaring everybody.”
But Toplis said while the shape of the financial sector is set to change significantly the banks won’t kill the golden goose.
“You can look for more stimulus from Government than you might be expecting.
“The Government has plenty of money to spend. It won’t meet its targets. It will fall to deficit but it won’t care – there will still be spending.
“My biggest fear is if we keeping cutting interest rates when we do hit the recession mark we won’t have interest rates to cut.
Toplis said dairy has the most pessimistic outlook.
“We are more positive about all other ag sectors that are looking pretty good – at least for the next 12 months.
“At the end of the day it’s not the end of the world but a time when you have to be really cautious about what’s going on. We will always have a patch of dirt to grow something.”
