Oh, what did they do that for?
The Reserve Bank people have only gone and mentioned the 'R' word, haven't they.
And it gets worse. RBNZ Governor Adrian Orr has conceded that the central bank is actually attempting to engineer something beginning with R, so hell bent are he and his troops at bludgeoning inflation into submission, as discussed in the first part of this year-ahead series.
I have previously talked of my aversion to the 'R' word.
My main grumble is that as a label, this word is essentially meaningless and simply becomes a distraction. Economic slowdowns can either be slight or severe, so, trying to encapsulate them in one word is not helpful. But given that there's already been quite a bit of chatter in the mainstream media on this subject during 2022, I'm afraid we are going to have to steel ourselves during 2023. Because I'm afraid we can confidently expect an endless cavalcade of 'are we there yet' stories appearing. Well, not from my computer...
To put some perspective on this, Statistics New Zealand generally produces its quarterly data for the country's GDP nearly three months after the quarter in question has finished. For example, the data for the September 2022 quarter is due to be released on December 15. You will be hearing more from me on this closer to the time, but I can assure you now that the September quarter figures will again show a reasonable amount of GDP growth. The RBNZ's forecasting +0.8%. And the GDP growth will continue in the near future.
The RBNZ's forecasting the first negative GDP return for the June 2023 quarter to be followed by another one in the September 2023 quarter, giving us the 'technical' (again pretty meaningless) description of one of those R things.
So, here's the zinger - assuming similar Stats NZ release patterns for the year ahead, the September quarter GDP figures will be released on or about December 14-15 of 2023. That's right we won't even find out if we are in an R-thing till the VERY END of next year!
Sorry, therefore to put a dampener on things for the gloom merchants and the aforementioned mainstream media try-hards, but the economic downturn (for, oh yes, there is going to be one) will be much more a subject for 2024. And we all need to bear that in mind. Patience. It feels like everybody wants to get this whole interest rate hiking cycle-cum-economic downturn out of the way in months and then back to happily buying and selling houses again - at rising prices of course. The whole thing might take a little longer, I fear.
Before any of this, there is the non-trivial matter of an election to navigate. For me, this one looms as the most crucial election for a while.
It is most definitely the National Party's election to lose. But having said that, the National folk have given the impression (particularly when their leader veers off-piste with media comments) that they might give losing it a crack! So, it's going to be very interesting.
I mentioned houses. I will also mention migration. Two subjects that can be easily linked. And they are two subjects that will be pivotal to the election outcome I think.
It's a reasonably comfortable assumption that a National-led Government will once again open the doors to unfettered inbound migration (it worked for them under John Key's leadership). On housing there will be a reversal of this Government's canning of interest deductibility on housing investment and a backing off on the capital gains tax on housing profits through the euphemistically-named bright-line test.
Unfettered inbound migration offers up the possibility of businesses once again augmenting themselves with abundant quantities of cheap(er) labour. So, labour market tightness problem solved.
Of course the migrants need somewhere to live. So, that's 'good' (if you are not trying to buy) for the housing market too.
Because of what a change of government will likely offer, I can see 2023 very much switching into a holding pattern. Key decisions will be put off.
In the housing market itself, it's not hard to imagine a similar holding pattern developing as people wait to see what the election might bring in terms of a change in environment.
In the meantime, of course, owner-occupiers are facing prohibitive mortgage rate costs while investors are dealing with handbrakes such as the previously discussed deductibility rule.
The question of how many forced sales we may or may not see during the year again relates back to the labour market. There will only be a big spike in forced sales if there is a big spike in unemployment.
If we did see such a spike, obviously all bets would be off. A lot of under-duress houses all going on the market at the same time would cause ructions and discomfort that would extend far beyond just the sellers of the properties.
Our housing market remains extremely vulnerable, simply because so many of us have a vested interest in it, aided and abetted by banks that are hugely (over?) committed.
Remember, the context here is that (according to REINZ figures) the national median house price rose 44% across the two calendar years 2020-21 (from $629,000 to $905,000). That left us all very exposed. Talk about betting on the house.
At this stage, I think we are showing every sign of 'getting away with it', but the labour market will be pivotal. And then there's that election.
I certainly won't blame people if they vote for 'the houses' in terms of supporting policies that are likely to support house prices.
As I've said before, I think in many ways we've reached a point of no return with our house prices. Seems to me that our housing market is in the too big to fail category and therefore we have been cast into the position of needing to support prices at what are, by international standards, high levels.
I think there was a time when we could have seen a re-adjustment back to more 'affordable' levels - but that was blown away in the feeding frenzy of 2020-21. Now any such readjustment could prove just too damaging for the economy at large.
Regrettably, what this is means is there will likely be an increasing disparity in this country between the haves and the have nots. But I'm not expecting to see any meaningful discussions or policies around that in this election. (It's far too late in this article to start a diatribe about how our elections in recent times have become far too much concerned with discussing things that aren't important while NOT discussing the things that ARE important, but that is what I do happen to think.)
Anyway, that as I see it is 2023 and some of the important things I will be looking for over the coming year. I've not tried to incorporate overseas events and influences because there's just too many uncertainties. Suffice it to say though that something big could happen internationally that blows everything I've said in these two articles out of the water. For example, I shamefacedly admit that my preview of 2020 didn't have one single word about Covid in it.
For me, 2023 looks very much as if it will be a 'bridge' year - moving from one thing to another. But whether it will be a bridge to better things in future - or worse - hangs very much in the balance.
This is the second of a two-part series looking at prospects for 2023. The first part can be read here.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
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