By Bernard Hickey
Finance Minister Bill English has given his strongest hint yet that he expects the Reserve Bank to cut interest rates further in response to very low inflation, saying the central bank had more room than others overseas to cut if needed.
"Central banks around the world are grappling with very low inflation," English said in a speech in Auckland hosted by the Auckland Chamber of Commerce and Massey University.
"There is a lot of uncertainty about exactly what is keeping inflation so low, and the implications for our economies. Markets are reflecting an anxiety that economies with zero or negative interest rates can’t rely on central bank interventions as they have in the past," he said.
"New Zealand is in a better position than most because the Reserve Bank still has room to move if needed."
English said New Zealand businesses had been resilient in the face of the global financial crisis, Canterbury earthquakes, higher interest rates than the rest of the developed world and a high New Zealand dollar.
"These relatively strong domestic results come despite some ongoing wobbles in the global economy. Uncertainty remains around the impact of US interest rate hikes, China’s rebalancing path looks rocky, and risks around European banks are becoming more apparent," he said.
English said lower prices were affecting the dairy sector, but dairy exports made up 5% of the economy and the industry had a positive view about its long term prospects. Tourism was doing well and now directly contributed NZ$10.6 billion to the economy or nearly 5% of GDP. Beef and wine exports were strong and the ICT sector was growing 9% per annum, while education now supported 30,000 jobs.
"The number of affluent and upper middle class Chinese households - those that earn over NZ $24,000 - is expected to increase from 44 million in 2012 to 225 million in 2022," English said.
"This is a big opportunity for New Zealand, given our main exports like dairy, beef, lamb, wine, horticulture and tourism are typically targeted at the wealthier consumer market. So while we can expect continued volatility in global markets, the New Zealand longer-term outlook is sound," he said.
(Updated with more details on economy)
83 Comments
Finally a warning to Mr Wheeler for not meeting his target for several years. Wouldn't it be great to have a boss who let you skive off for a few years before finally telling you to pull finger.
If it wasn't for the damage he is doing to the New Zealand economy it would be laughable.
"Brute force"?... Can we tone down the drama a little....
Mr wheeler as an unelected official who has no authority to ignore mandate he agreed to when he was appointed Reserve Bank Governor. If he wants to change his mandate so he can ignore inflation when setting monetary policy then I suggest he set up his own political party and get elected. Until then he needs to meet his employment obligations which include being accountable to the Minister of Finance in respect of the RBNZ inflation target.
Once the Chinese devalue and in a significant way , then their middle class will disappear. Will they continue to pay for overpriced commodities from New Zealand, but I suppose that depends on how far we wish to devalue our currency. Central banks and finance ministers who offer no solution.
Why would it be economic suicide? We got into this mess in a big way (a while back) because global OCR's were too low for too long making credit way too cheap, particularly around house & property speculation. So to reverse this situation back to some kind of normal they should do the reverse and continue to focus tax laws and speculative LVR's galore on that sector, fine tune it to kill the hoarders and speculators (foreign and domestic) in their tracks. If these people try to raise rents to compensate then employ a nationwide rent freeze so the pain cannot be passed on to those it hurts the most. Pain will be inflicted on those who participated and profited the most in this ponzi scheme now or later either way. There are many ways to inflict selective pain.
Job's will be destroyed in the process, lives will be hurt, banks will take a hit, But some of us will survive. We face economic suicide if nothing is done anyway. There is no way out of this without some very hard decisions being made at some point. Should not the biggest victims be the 'greedy'?
"Too big to fail" is the policy of economic suicide....just a lot slower drawn out death
A recession on house and land prices IS required though Steven. What happened to our interest rates after 1980? Did mortgages get cheaper or were many paying double figures, yet we survived! Home ownership rates were what back then? The only way to correct this bubble is with a "controlled deflation " and it can be done. It just takes some guts. Otherwise we will All suffer terribly if left to continue. The vote in Auckland the other day was purely driven by selfishness
"We survived", is that your goal.
The OCR was not introduced until 1999 so references to the 1980s are not relevant.
An OCR of 15% would see NZ bankrupted very quickly. Deposits would poor in from offshore and our currency would go through the roof. All NZers with loans would suffer increased costs (mortgages and businesses) and the contraction that would cause in spending and enterprise would wipe out most NZ businesses. Banks would simply leave their money with the RBNZ and collect 14.75% interest.
"Controlled deflation"... more like economic Armageddon = economic suicide.
I don't know where you are living when you say "otherwise all will suffer terribly"... Appears to be a lot of Chicken Lickens on this site.
Yes and our currency was not floated back then or manipulated by carry trade speculation either. The only one suggesting an OCR at 15% (which is ludicrous to try and scaremonger a point) is YOU!
All NZder's with loans would suffer yes, particularly PI's an speculators fore as I said these things can be very targeted if need be. Taking out multiple loans and living off the backs of others is not compulsory. They have to take personal responsibility for that decision. I have no debts for example and take responsibility for that. All part of being a 'grown up'.
My point was those advocating lower interest rates has no effect on inflation should also argue increasing them also has no effect. The 15% example was to show them the lunacy of their proposition.
In respect of your rant about landlords. They would be able to weather any increase better than home owners. Unless as you say the Government put rent freezes in place and other draconian measures. Lucky for our society any such party advocating this would never be Government.
Do you have any investments where interest is charge? If you do you are living of the backs of others. If not you must be living hand to mouth so envy would explain your comments.
Lets say, government gets a big drop in tax take, commodities stay in doldrums. So government axes accomodation supplement, brings in Capital Gains tax.
Then China devalues by %50 exporting deflation all over the world, real wages fall, unemployment goes up, things get tough.
http://www.zerohedge.com/news/2016-02-26/why-hedge-fund-manager-who-mad…
the price of the money should not be controlled. It's as simple as that. The price of the credit should be left to be defined by the offer and demand.
Mainly because we tend to think that markets follow central banks policies when the reality and the experience shows exactly the opposite: the central banks are the ones that follow the markets.
Hence the central banks can only create distortions in markets and boom/bust cycles as seen recently in most of the world.
How long will we be trying to use these failed recipes? Do central banks really think they can nowadays and given the current situation create inflation by lowering interest rates? Why do we continue considering the economy as a science?
Muntijaqi, haven''t you heard about the great global depression from 1924 to the late 1930s when the economy was largely unregulated and 95% of the population were reduced to abject poverty.
I suggest you go to the library and read a few books on this subject,
I have mentioned before that history should be a compulsory subject right through secondary school.
There's a difference between regulation and intervention.
During the 20's many were borrowing money to invest in stockmarket and inequalities arose between the ones able to borrow more and buy real things with their paper money and the ones that couldn't. In other words the gap between productive economy and financial was out of control, like now.
The FED existed since 1913 by the way so I'm not too sure what are you trying to tell me. That central banks are necessary? That it's ok to interfere in the OCR? Would you also interfere in the market of nails or screws? It seems to work fine without anybody interfering its price
People - You are being suckered
All the town-criers and citizenry are crying out for the Central Bank to make their day and fix things
Call it what it really is - deflation
All the punditry are calling it either falling inflation (sounds good) - below target - downshift in inflation (how nice) - the article by Westpac economist used the term "downshift in inflation" 50 times - really
And they call for the RBNZ to cut OCR rates
If anyone cared to make the effort to research what central-bankers can do to control deflation (that's what all those euphemisms above are) you might be surprised
Controlling Deflation
http://www.yourarticlelibrary.com/notes/macroeconomics/ways-to-control-…
nope, peak oil seems to have occured 2005. Since then its been pumped up with shale oil so max peak oil all sources probably in side of 5 years, maybe 10 but very probably not.
Even if it was several decades out that is no time in terms of a Govn and national economy. So sure you maybe dead but your offspring are left to coep with what littel you have left.
If English wants inflation, higher wages, more tax take and lower/stable house prices he needs to be talking to his fellow ministers and cut immigration to the bone. Kiwi workers are having to compete with hordes of desperate third world immigrants that are working for next to (if not actually) nothing. There is no issue with our level of credit growth (well above nominal GDP growth) and that's the only thing that would be accelerated with lower interest rates.
The global economy is groaning under an unprecedented debt bubble and all these clowns can come up with is even more debt.
It's called fiscal creep, no, not Bill; the rising tax take and wages due to inflation.
We have deflation due to excess debt and a huge increase in the global work force and production. Suits me fine if things are getting cheaper but, apparently, it's a very bad thing according to TPTB. In this environment lowering interest rates (they're already at historic lows) will have little or no effect on increasing inflation, probably more likely to increase deflation.
Perhaps the central banks should just stop dicking around with things they don't fully understand - it's now eight years since the GFC and we're still in a mess.
NZ didn't cause the GFC it is caught up in the actions of other people in other countries.....so we are very much in navigation mode around the global issues......Wage and tax increases would cripple NZ business and make us less competitive with other countries.....this will cause unemployment to increase so things start back-firing very quickly......
Wheeler has already tried to go it alone and set the ORC at an incorrect level for NZ and his timing for doing this was hideous for many like those who the whole economy relies heavily upon......there are NZ businesses relying on the bureaucracy to do their job so those businesses can keep employing NZ'ers which is what pays for the bureaucracies in the first place.
Has anyone worked out how much extra interest farmers ended up paying during the period Wheeler raised rates and went outside his PTA? Every farmer paid more in interest than they should of and I bet that extra money would have come in very handy for them right now.
NZ must remain competitive and that means our OCR has to be in line with other countries settings.....
Your comment just tells me you don't know too much about tax laws.....farmers pay personal income taxes the same as everyone else.....They also collect their GST for the IRD and don't get paid for that service......they also do all the free work in paying wages to employees and don't get paid......
It is private enterprise that is picking up the whole tab for everyone and that includes the taxes that some think they pay!!
and not to mention 'notaneconomist' that they are small businesses in a practical sort of industry with plenty of room to shift some expenses which for most people are personal onto the business. Yes, they pay tax -- but also yes they have avenues to reduce it that the PAYE taxpayer doesn't have.
yet Ive seem comments that with some creative accounting some farmers claim WFF and even benefits.
So lets see, how much does a farmer have to live on? if its on farm they have no rent to pay nor mortgage?
Do they still pay fringe benefit tax on that?
run a company vehicle?
pay a % of the power bill? phone bill? internet bill? or is all that rolled into "lets not discuss that" ?
pay a % of the rates bill?
I would suggest you go get a copy of the Staples tax guide and read it Steven as it will answer all your questions.....
Of course farmers can claim any relevant business costs or a percentage of them...what is the problem with that? Why should the private individual pay for business costs?
The taxation issues on vehicles is quite extensive and across numerous tax types which requires a lot of book work to be undertaken.....so far too lengthy a topic for me to write about here.....but you are wrong if you think farmers can willy-nilly run around in business vehicles for their private use and not pay taxes on this use.
Yes we are a wee drop in the ocean of global finance but we are well and truly capable of cocking things up without any outside help. We were already in recession when the GFC hit with our finance companies in a precarious position. A massive ponzi scheme brewed up and given sanction by our RBNZ and other regulators. Do we really need another?
This time we have a lot fewer options and no good ones - we are trapped by a kind of global insanity. Negative interest rates, helicopter money, blatant central bank financing of government and so on. Sounds like some disfunctional banana republic but these are serious, large developed economies. What a mess!
"Central banks around the world are grappling with very low inflation," English said
No Bill, what they are grabbling with is massive economic crippling debts, both private and government creating a huge lack of demand across many commodities. Banks however....continue to gloat about their imaginary ponzi profits....until the day of reckoning comes that is.
Just summarise - there are some low inflation issues out there that other countries are dealing with, but we don't know what is causing them, dairy hs taken a hit but tourism has stepped in to take up the slack. Soooooo - all is good and we don't need to do anyting! Foot note from One News - by the way Jafas, sort your s**t out or we'll do it for you!
It's pea-brained of Bill English to point to the scale of the Chinese market in coming decades as some sort of economic reassurance. Numbers of people aren't the issue. What matters is ensuring they'll have reasons to choose New Zealand products over other options in those years ahead, and pay a premium for those New Zealand products.
Take Nokia's experience. The mobile phone market was growing exponentially all through Nokia's history, and it was once the world's largest mobile phone manufacturer. But all those numbers of people turned in another direction. Next year around 2bn people will have a smart phone. And you'll need a magnifying glass to find Nokia.
It's not the size of the market that counts. It's what people are offered. And the same old, easily replicated, not particularly outstanding, undifferentiated commodities aren't going to cut it.
The one thing that might make a difference - pure, natural products from relatively unblemished, well managed, natural environment - will be long out of reach in those years ahead without a radical rethink of our volume-before-anything strategy.
English will soon be forced into some form of fiscal stimulus within the next 18 months:
A) if National are to have any hope of reelection
B) to avoid a soon coming recession, with high interest rates(for the conditions), dairy dive, and immigration breaking Auckland, with zero wage growth.
Move along, nothing to see here according to Nathan Guy;
http://www.radionz.co.nz/national/programmes/morningreport/audio/201790…
For an actual dose of reality;
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201790722…
Worth a listen: BBC World economic worries and market turmoil radio - http://www.bbc.co.uk/programmes/b06ycytl
Forecasts or "hope from the pulpit" ....
Comparing forecasts of economic growth to actuals.....are we there yet....soon!!!
Agree. It would help if Wheeler could counter the thoughts that he is a whimp after all of his non-action, limp wristed handling and wrong decisions.
With the Key/English duo unwilling or unable to curb immigration, someone has to do something that improves the tradeable goods economy rather than rely on adding to capital from immigrant wealth.
One thing I learnt pretty quick in my thirty years of practice is that the majority of farmers hate paying tax.
They too a man have set up structures to minimise it and it was not unusual for owners of multiple farms to have community service cards and their children receiving student allowances rather than loans. Luckily the government stopped the latter rort. In essence the rest of the country can keep it all going tax wise. Frugal, mean, tight and mean spirited people who think the world owes them a living. And don't mention how so many of them treat their staff so badly.
'Farmers are notoriously tight' - yet people go on to criticise them if they buy a new car or have an overseas holiday - all of which contributes to the local economy. So I guess the poor old farmer just isn't going to win with the non farming population who looks on them with envy but would never get out there and do what dairy farmers do for a living. ;-)
Personally I hope you mean dairy farmers. I am firmly in the sheep n beef camp. In the last 5 years or more I have noticed disapproval when townies think I am a dairy farmer. So I clearly state I am beef farming. Not sure really if it makes a difference to them, but I dont get the ...ooh I envy you farming....anymore. Working on farm twice a day milking affects the brain. It does make you think the world owes you a living. It makes you cranky. I milked cows to rear calves for a long time. Its positively awful. I think you have to do it for a few years to understand the mindset. Having weekends is more than a luxury, it keeps the head straight. Check out any over worked small business owner, many are affected the same.
Yes I am talking about dairy. Beef and sheep farmers seem to have something nice about them. Hence my love of country calendar. Milking cows certainly must numb the brain. You certainly would not want to be doing it if you had the ability to do something more mentally taxing.
Courses for horses gordon. There are many people who are needed to make the world go round and farmers are among them. Who would feed the world if it weren't for farmers - dairy included. You appear to be a person who only values intellect - that's fine and dandy but the reality is that we need both blue and white collar workers. Many farmers find milking very relaxing and a great time to think - maybe not Belle, but then that isn't her 'calling'.
My problem CO was once the cows were milked the work started. Rearing the calves took the rest of the day. And yours truly was it. I went back to colostrum and milk powder. Whew. Much easier to go get colostrum every couple of days compared to running a herd of cows. Recently I tried a beef cow mob. Slapping forehead right now. Thats a good way to not make money. Straight trading worked best but that is over rover. Store beef is at a mindblowing price. Every man and his dog is desperate for stock as dairy heifers stay at home. I did love the cows, beef and dairy. I just dont recommend being the only one ever milking. That is the awful bit.
Monetary policies are useless with a situation of excessive private debt and financial markets overvalued.
Have a look at the Cleveland Financial Stress index
https://research.stlouisfed.org/fred2/series/CFSI
It has only reached similar levels 3 times in the past:
in 2011 in the middle of the European periphery debt crisis .
in 2008-2009 during the systemic GFC
and in 1998 during the Asian crisis
RBNZ should hold fire
I dont think you understand the conundrums of farming Gordon. Every day brings change. Weather, animals, markets. The brain does a lot of work figuring out how to best make money or problem solve when doing the mind numbing stuff. Sitting in a chair staring at paperwork cant be much fun either.
I am glad you asked him about a job, because work is when you produce something. He was a merchant and survived off the back of others peoples productive efforts. But like most recipients of unearned income, he will justify himself nicely and why his was the exception.
I read all the posts and see the same names appear regularly.They all seem to be financially literate,but I am absolutely fed up with the unremittingly negative tone.I you believe them,the financial world is on the verge of collapse.Well,at 70 and having been involved in the stockmarket one way or another for many years,I have heard all this before.I have seen many stockmarket crashes,right back to the '73/74 crash in the UK and that was a biggie.Long-term investors with a clear strategy survived that and all the others since.My strategy is simple;concentrate on good quality companies with strong balance sheets and decent dividends.
There certainly will be another crash and it might be this year,but the ship will right itself in due course and there will be buying opportunities on the way for those with cash.
The OCR will fall this year and so it should.Inflation will remain subdued for a long period and investors should expect significantly lower returns.I would be quite content with a total return of 5/6%pa over the next few years.
I think Link we are all fed up with capitalism that aint capitalism. What should have fallen years ago, was bailed out and nursed along with taxpayer funds. What has happened isnt the normal course of business. Do you think house prices at 12 x annual earnings is good or normal? Do you think the over capitalisation of our farmland with cowsheds and effluent ponds is putting New Zealanders in fields of clover?Call a spade a spade and yes people will survive and go on, but the msm was in la la land as this all converged and mostly still is. So allow us our frustration....
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