New Zealand has been experiencing a recession as severe as the Great Recession following the Global Financial Crisis, at least in terms of economic output.
On Thursday, Statistics NZ reported gross domestic product (GDP) declined by 0.2% in the June quarter and was down 0.5% from the same time in the prior year.
These headline numbers might not sound too bad until you account for the 2% population growth over the same 12-month period. Annual GDP per capita fell by 2.7%, matching the largest annual decline seen during the 2008 recession.
There was a larger decline in GDP per capita during the pandemic in 2020, which was quickly offset by abnormally fast growth in subsequent quarters.
By contrast, June 2024 marked the seventh consecutive quarter of stagnant or declining per capita economic activity.
This dire run has only happened one other time in recent history: during the Great Recession.
Except this time it is arguably worse. GDP per capita dropped 4.3% across the seven quarters beginning in December 2007, compared to 4.8% in the period ended this June.
New Zealand seems to be experiencing a second Great Recession. We may need to rename the 2008 downturn—similar to how the ‘Great War’ was eventually recast as World War I.
This argument is supported by the Reserve Bank’s forecast of two more quarters of flat or negative GDP growth.
On the other hand, while the economic slowdown has been more severe than in 2008, other indicators suggest this downturn may not be as damaging.
Unemployment nearly doubled to 6.6% during the First Great Recession but is expected to peak at 5.4% in this cycle.
The Reserve Bank (RBNZ) also forecasts wage growth to be stronger and the economic recovery to be quicker—partly because the 2011 Christchurch earthquakes prolonged the slowdown.
However, these are only projections, and the outlook could still worsen.
Nic Guesnon, an economist at UBS, said high-frequency economic activity indicators had stabilised enough to suggest a downward spiral would ‘probably’ be averted.
“The [GDP] data will likely come as a relief to the RBNZ, which was concerned there could be an even larger drop based on timely activity indicators and business surveys.”
UBS expects another decline in GDP for the September quarter and predicts the central bank will cut the Official Cash Rate (OCR), currently at 5.25%, to 4.5% by year-end to prevent further declines.
Brad Olsen, principal economist at Infometrics, suggested the stronger June result might set the stage for a weaker performance in September, as the economy was still contracting.
Leading us out
Meanwhile, across the Pacific Ocean, policymakers at the US Federal Reserve voted to cut benchmark interest rates from 5.5% to 5% in response to weakness in the job market.
Stephen Toplis, head of market research at BNZ, said the RBNZ should continue cutting interest rates steadily, with the aim of bringing them below 3% sooner rather than later.
“With the GDP data, and the Fed’s move this morning, surely any talk that the Reserve Bank might pause in its cycle any time soon should be abandoned,” he wrote in a note.
“The economy is unequivocally weak. Throw away the concept that you need two quarters of negative growth to be in a recession. We’re in a recession, and have been for almost two years.”
In Parliament on Thursday, politicians were working to shape the narrative surrounding the recession and position themselves ahead of the recovery.
Finance Minister Nicola Willis was quick to take credit for the August OCR cut but suggested that inflation and the central bank should be held responsible for the weak June data.
Willis said in a press release, “Today’s GDP data confirms what we already know—that the economy has been suffering from the after-effects of a prolonged cost of living crisis, with the Reserve Bank forced to keep rates high to combat inflation”
Barbara Edmonds, the Labour Party’s finance spokesperson, argued the GDP data showed the Government was not fulfilling its promise to grow the economy.
“Almost a year into her tenure as Finance Minister it’s time Nicola Willis took some responsibility, invested in growing the economy and stopped the cuts,” she said.
Economic textbooks may recommend increased government spending during a recession, but there is little room for this now. The Crown is already running a deep deficit and carrying a heavier debt burden than in previous decades.
The ultimate depth and duration of this second Great Recession will likely hinge on monetary policy rather than government intervention.
177 Comments
Naive comment. I don't blame you though, that's the narrative being peddled by economists in the mainstream media due to some having vested interest in real estate speculation and others who are being shouted down or forced to conform by the lobbies.
Normalised interest rates in the last couple of years is just the tide going out revealing that most of us have been swimming naked for a while. NZ has had declining economic competitiveness for a decade or more and we've done jack-all to fix any of that for the good times to return.
In simple terms, we don't have the means to support our first world lifestyles as reflected in our current account balance and the mass exodus of skilled Kiwis. Lower interest rates will stimulate the economy in the short run by kickstarting housing inflation and pulling money into speculative investments, when we desperately should be making targeted investments in parts of the economy neglected for almost a generation.
"Lower interest rates will stimulate the economy in the short run by kickstarting housing inflation"
Interesting to look at the case study for Japan:
1) Japan peak house prices in 3Q 1991.
https://fred.stlouisfed.org/series/QJPN628BIS
2) Vs interest rates for the same period
https://fred.stlouisfed.org/series/INTDSRJPM193N
Why was that?
house prices can logically rise at the rate of wage growth long term, anything faster just implies a credit bubble
Looks like there is broad consensus from the media, experts and public for our central bank to inflate another credit bubble at all costs.
The difference this time is that the domestic economy is in pathetic shape and worse than the starting point of past credit bubbles. The bottom is a long way away given the economic effects of the ongoing skilled Kiwi exodus and industrial shutdowns are yet to be felt and how that will affect long-term economic capacity is not being reported/measured.
Economic textbooks may recommend increased government spending during a recession, but there is little room for this now.
Dan, this is absolute nonsense. NZ Govt has a net positive financial worth, one of only a handful of countries in the world with such obvious fiscal headroom.
NZ is also the only country in the world that I can see that has a govt with a net positive financial worth and a current account deficit. This is only possible because the domestic private sector has debt at 140% of GDP. If the govt does not invest, our recovery will depend on increasing private debt back to even more stupid levels.
Also worth remembering that Chch EQ caused a temporary drop in economic activity but the investment that followed was a key driver of our recovery.
Sensible macroeconomists all agree that the painfully slow 8 year recovery from the GFC (across the world) was the result of Govt underinvestment. A mistake we look like repeating. The idea that low interest rates (monetary policy) will lead any kind of recovery is cloud cuckoo reckonomics. Remember, Key ripped up Clark's budget in Dec 2008 and turned on the spending taps.
The caveat must be 'investing' in productive infrastructure etc vs just govt 'spending'. Within your argument is it not also true that massive government spending without any productive asset realised at the end for society is a net negative? Elon Musk made an interesting argument at the All-in summit with respect to cutting government employment and economic productivity. He essentially claimed that a person in the private sector is 10x as productive as that same person within the government sector. The result being that a responsible cut in government size and employment should be a large net economic positive. So, are you saying targeted government investment in productivity is needed, or just spending?
Yes, of course, Govt should invest in things that improve our future - energy self-sufficiency and increased food sovereignty would be where I would go.
At the moment, Govt is investing in the future by buying shares and other financial assets - that's why Govt has a net positive financial worth. Do we think we will be able to miraculously turn all of that paper into a late-21st century health and care system, or an oil and gas-free energy infrastructure? It's a ridiculous strategy.
Elon's comment on productivity is just as ridiculous. As if the guy designing adverts to persuade us to by the latest SUV is more 'productive' than a teacher or a nurse? In my view, you have three broad categories of jobs:
- useful (engineers, teachers, nurses, farmers, technicians, builders etc)
- parasitical (most finance, insurance, real estate jobs, advertising, etc)
- dangerous (political lobbyists, violent criminals, bookmakers)
I am messing about a bit here, but you get the drift. The whole public sector vs private sector thing is a divisive strategy deployed by people with an interest in extracting maximum profit from people and planet.
I appreciate this response and always enjoy your comments. I think the key question to your first point is the line between government 'funding' versus 'implementing' said investments that improve our future. I worked in this implementing space with NZ government funding and we did some beautiful work towards energy self sufficiency for the clients. I agree with your priorities but would highlight 'conservation' as a key area for investment also.
With respect to productivity I see your point but fundamentally believe in individual agency and opportunity first. As such the whole system has to work together and it broadly does by delivering a wide variety of 'productive' opportunities and high living standards. It's a deep question with respect to eyeing up our most critical issues and pondering whether they're present mostly because of private interests, government behaviour not necessarily in line with public wishes, or both. Either way I resist the creeping demands for reductions in agency/growth of the state.
Elon's point is well supported in the context he was speaking. There's no debate with respect to command/control economies and consumer choice, quality, availability etc etc. Whether or not you consider that 'productive' seems to be your point.
Nicely put, yes. The lens we look at things through shapes our analysis. I fundamentally believe in communities having agency being supported to do what is right for each other. So, when I look at our world, I get cross about effort wasted on fruitless activity whatever the sector. I also get cross about wanton self-destruction - and agree 100% with your conservation point.
JFoe NAct want the new debt off balance sheet, IMHO therein lies stupidity..... its just going to bleed taxpayer monies to rentier classes
think, would Singapore have done this?
so many high paid public servants so little competency?
not worked in that sector what are peoples observations?
Exceedingly good point. In a nutshell, your observation is:
1. Should government stimulate the economy and choose where to spend it? (fiscal policy)
Or,
2. Should private enterprise stimulate the economy and choose where to spend it? (monetary policy)
The answer is pretty damn obvious once you accept the average kiwi isn't that bright.
Exceedingly good point. In a nutshell, your observation is:
1. Should government stimulate the economy and choose where to spend it? (fiscal policy)
Or,
2. Should private enterprise stimulate the economy and choose where to spend it? (monetary policy)
The answer is pretty damn obvious once you accept the average kiwi isn't that bright.
Only a comment a pompous self serving elitist would make
Very few Govt Burecrates (drongos) actually produe anything of actual value to society so reductions in Gvt burecrats has a double positive whammy - less interference and either more bodies to do productive work (unlikely) so less wages and lower expenditure through benefits is a substantial gain for NZ. Now if increased productivity was encouraged NZ would become a rock start economy in reality.
Dan has made the choice to avoid the real world.
He is 'reporting this economy', apparently - reporting the heat in the cups by asking the tea-leaf-readers - and it was a conscious choice. Not the real economy - which cannot be read through such a distorted glass, that darkly.
Surplus Energy Economics | The home of the SEEDS economic model – Tim Morgan (wordpress.com)
The latest post - but those who are new to it, the lot.
'I suspect these leaves came from a south-facing hill in Sri Lanka, picked by smiling people in traditional garb'...
There are two fundamental effects here and they should be kept separate. The distorted low interest rates: 1) enabled government spending, which has a low multiplier effect and largely doesn't count as investment at all, and 2) encouraged private mal-investment ie the tranche of cheap money had to go somewhere.
I don't agree that it's sensible economics for a state sector to try and spend its country out of recession. A state doesn't operate under the same competitive incentives the private sector does. Ergo the larger the state spending the less aggregate efficiency of spending is seen. Best thing the government can do, is get out of the way.
Now, if the electorate makes a policy choice to elect a government that will accept less economic efficiency for a different social outcome, that's a separate issue. In extremis social discord will feed back into lesser economic efficiency but we're some way off that happening.
This is almost entirely untrue.
The distorted low interest rates... enabled government spending
No, that's not the case, low interest rates do not enable govt spending at all. Govt both pays and collects interest / dividends and these broadly balance out (Govt wins more often than it loses). And, just as importantly, Govt doesn't have to sell bonds to spend, it sells bonds to mop up the money it has spent.
Govt spending has a low multiplier effect and largely doesn't count as investment at all
What are you talking about!? Spending has an effect - the size of that effect in the short- or long-term depends on the focus of the spending. When Govt built loads of hydro and gave us decades of cheap energy, did that have a 'low multiplier effect'? What about the broadband rollout? What baout paying teachers to teach kids, or nurses to save lives and help people back to work?
... Govt spending encouraged private mal-investment ie the tranche of cheap money had to go somewhere.
There is a glimmer of truth here. But, the mistake Govt made was not taxing their spending back out of the economy. They should have introduced a higher rate of income tax for 2021/22 (or something similar). Now, don't get me started on RBNZ's dumbnuttery.
I don't agree that it's sensible economics for a state sector to try and spend its country out of recession
When a central bank collapses aggregate demand and starts a doom loop, the only thing that has been proven to reverse this is Govt spending. What Govt buy matters of course (see above), but the idea that the real economy will turn round because RBNZ drop interest rates is daft,
A state doesn't operate under the same competitive incentives the private sector does. Ergo the larger the state spending the less aggregate efficiency of spending is seen. Best thing the government can do, is get out of the way.
And are those competitive incentives always aligned with the needs of the population? Do the lobbyists and marketing guys trying to get us hooked on nicotine, or drinking more... is that good competitive incentives at work? What about the car companies pouring billions into marketing SUVs because they make a great margin on them? Is that good? Is that efficient?
As for the old 'Govt get out of the way' thing. Please. The market exists because the Govt have created a regulatory / legal framework that enables the market to function. The Govt also need to keep those competitive incentives in check - as companies have a tendency to ignore the good of the people in their pursuit of maximum profit.
Thanks for the response. This is where we differ:
First, I am not aware of any evidence that Govt interest expense is somehow balanced out by interest or dividends it receives. I strongly doubt that is correct, and your assertion is not underpinned by empirical data. I maintain that low interest rates generally enable Govt spending because they allow more bonds to be issued at lower cost. And, this happened.
Next, there is very strong econometric analysis that indicates Govt debt-financed spending has a low multiplier effect in the aggregate (ie., a dollar of Govt debt generates less GDP than a dollar of private debt does) and therefore is harmful to productivity overall. The Govt multiplier continues to reduce with increasing debt levels. (See, for instance, K. Roghoff.)
Third, the suggestion that taxing more and having the Govt spend a dollar rather than the private sector person who earned it, fails because the Govt will spend it less wisely and with a lower multiplier (see my second point).
Fourth, to the contrary, Govt spending is simply not necessary to break a 'doom loop', as you call it. The loop depends on the over issuance of debt. So the best way to break the loop is to stop borrowing and thus reduce (non-productive) Govt spending.
Fifth, your references to nicotine and the like are isolated social issues not representative of the aggregate productive economy; rather, they tend to indicate why the libertarian world view can use tempering! I don't see that these are relevant.
Sixth, the fact that the market operates in a legal framework supervised by the Govt does not logically mean the Govt will necessarily increase efficiency by intervening in the market. The former role is a referee whereas the latter is as a player.
First, Stats NZ publish data on net interest / dividend payments by sector. Here's the NZ Govt position. Feel free to check the source (quoted in the chart).
All Govt spending is debt. The Govt deficit is the gap between money spent into existence and money destroyed by taxation.
It makes complete sense that a dollar of Govt debt generates less GDP than a dollar of private debt... why? Because GDP is a measure of cash surplus collected by industry sectors. So, if a private company borrows to build a new IT system, and this increases their profits, they generate some GDP. Hurray. Now, if IRD develop a new IT system to manage taxation, their GDP contribution barely changes at all - in fact it would go down if they employed fewer staff thanks to the new efficient IT system. What you might be missing though is the secondary use of those private and public debt dollars - if Govt and the private company incurrting the debt both paid the same IT company - would the private debt dollar magically generate more activity?
Your 'Govt spend is dumb, private spend is good' thing is an ideological generalisation. We can disagree on that.
There is no ideology; the Govt reduced multiplier effect is real, strongly shown by sound mainstream econometric works, and the opposite of what was taught in High School economics. Critically, however, I see you disagree with GDP being a legitimate economic measure. (Sort of like a builder arguing that he doesn't believe what his plumb stringline is telling him.) Taking such an extreme position renders further debate otiose.
In passing, your chart is only somewhat interesting. Have a look at The Treasury's current statements; sure, there are some receipts of the kind you refer to but these are small in comparison to the absolute level of debt that must be repaid, and the interest on that debt, which is mounting rapidly as lower interest bonds are rolled over with higher interest ones. I don't really understand your point, to be honest. Govt debt wasn't spent on projects generating returns to balance out the interest expense on the borrowed money. Intuitively this is so, given how the last Govt spent all the cash they borrowed, and the figures bear it out.
The error was fundamental - it undermined their whole hypothesis. It also famously included a star role for New Zealand data.
Maybe you're misunderstanding. It wasn't an isolated error. It undermined their whole 'high govt debt = low economic growth' schtick. People literally threw their stupid austerity is the answer books in the bin.
I don't think you understand what GDP measures. Particularly the headline GDP(P) measure. If you knew, you wouldn't attach much importance to it. Indeed, the inventor of GDP explicitly told people never to use it to measure progress! But, then maybe you missed that too?
Subsequent work showed their core thesis to be valid, and in the years since it has been empirically supported by the rates of growth experienced by, e.g., the US, Europe and Japan. Maybe you are misunderstanding that the more debt a polity has which has been used unproductively and does not produce income, the greater drain on resources is needed to pay the interest on that debt. I don't understand why this is controversial. Anyway, this exchange appears to be degenerating into rhetoric and I will not continue it further.
Govt interest payments are stimulatory - what's the strongest growth in the world right now? The US. Why? Because Govt is deficit spending at around 6% of GDP and paying out at least 2% of GDP on top of that in interest payments on debt. The mistake you are making - and many do - is to think that Govt has to tax money away from people before they spend it. That's the fundamental error in most (bad) macro models.
As I've said, I will not engage further with these low grade quasi philosophical meanderings that have somehow led you to believe government debt and its associated repayment and interest expense in aggregate are somehow stimulatory in the long run (as opposed to a few months of sugar rush). However I do find it ironic that you are purporting to refer to growth based on US GDP figures.
On my wall? To throw darts at? No. I'd puke before I could hand a dart looking at either.
I was hoping, nay expecting, MacroView would back up their assertions with any paper that has "strongly shown by sound mainstream econometric works" they claim exists.
I don't expect MacroView to produce anything.
Sorry. That is exactly what you said.
Now, if the electorate makes a policy choice to elect a government that will accept less economic efficiency for a different social outcome, ...
My question remains:
Might I ask why you think the electorate is in any way qualified to make such choices?
I can wait.
What?
I have no way of knowing whether individuals in the electorate are qualified to any particular extent to make any more or less informed choices. My point was simply that the electorate overall does in fact make such choices regularly by electing different politicians.
cutting rates in the short term is the only way out.
for the long term structural changes need to be made to many industries to bring cost of living down - all the competition that has been sucked out of this country (and is still happening) with the approval of the government (both Labour and National are guilty) over the past 20-25 years needs to be brought back into this country. It can be done, Kiwibank is a good example in the banking sphere, and Chorus in the telecommunication industry is another great example.
Oh well, good to see this website abandoning the nonsense rhetoric around not being in recession. As the economists note, we have effectively been in one for two years.
I suspect unemployment might creep a bit higher than 5.4%. Full time job opportunities no doubt look a bit grim for the large numbers of students leaving universities and high schools in a couple of months time.
Yeah, we are getting to the acceptance part of the cycle. Next up is anger I believe. That’s probably 6-12 months away. I wonder where all those economists and commentators have gone that were telling us 2% interest was the new norm, house prices would continue going up, during the soft landing ‘short and sharp’ recession. What a load of cobblers. The bigger the party, the bigger the hangover. It was so obvious.
Yep, a friend had an interview yesterday and said there were 71 applicants for a 70k salary job and was shortlisted to 5 for interviews. I've heard of more applicants for roles in Wellington, but bigger city than where I'm at so it's all relative. Also this friend is planning on saving and heading overseas like so many others.
* Newsflash* graduates have ALWAYS headed overseas myself included. More than a decade overseas in fact but then guess what? Once you decide to start a family NZ becomes very attractive again and you move back. Our young family lives in an area and has a lifestyle we could never achieve overseas even on hugely bigger salaries. The vast majority of kiwis will do exactly this it absolutely nothing new.
Yes graduates do tend to go abroad, but personally I've never seen or heard of as many entire families upping sticks and jumping across the ditch as a unit as I have done in the last 6-12months. Anecdotal on my art sure, but we've never in recorded history had this level of emigration
The Kiwis Moving to Aussie Facebook group has over 41,000 members, and a recent analysis of the membership shows the 25-34 age group is the largest group leaving (almost 40% of the total) followed by the 35-45 age group (30%). The third largest group is the 35-54 year olds. These people are selling houses, shipping furniture and uprooting their families to make a major shift - they are not footloose and fancy free 20 year olds heading off to London for a year pulling pints in a Clapham pub. They wont be returning.
https://www.facebook.com/photo?fbid=8179774725467164&set=gm.10530532827…
If you want further empirical proof of the loss of NZ families, you just need to look at NZ birth rates, as the number of European births dropped by 14% in 2024 from 2023. Thats 5000 missing babies.
Stephen Toplis, head of market research at BNZ, said the RBNZ should continue cutting interest rates steadily, with the aim of bringing them below 3% sooner rather than later.
Of course a bank wants low rates to go back to throwing credit at people like it is nobodys' business. The banks always wins. I hope we never get back to such low interest rates, as it has already proven the flaws in the system are due to the flaws in human nature. Most will borrow towards the max they can as they can't always see the long term cost, risk and consequences for their future, and the system of credit creation is driven entirely by profit from retail banks which is morally wrong.
Sorry HM I am not judging you. More the concept which i am unfortunately aware may become policy.
As with the US and the UK debt levels (and climate change).. nobody will address the underlying issues until the symptoms become insufferable for the populace.. at which point it it will be too late
People are generally unable to understand the issue. And too busy worrying ab9ut the next paycheck and this months rent.
Yes. It's quite frightening that a lot of people are already struggling.
A lot of those that left for Greener pastures in aus may also return in the next couple of years... and they wont help as they will be worse off than when they left.. as the "lucky country' runs out of luck (iron ore prices hit the floor and they are also in a pickle).
Ho hum
But! Mrs Minister Sausages & Holes believes' there are 'Greenshoots' just around the corner!!
Code for, she doesnt know what she's doing but she's doing fine.
As the VOTE-Appropriations are still ongoing in parliament (normally completed within the month of June/July), seems to be a deliberately prolonged process. So, no new spending is in 'play' other than paying the bills and keeping the lights on.
Crisis,Stagflation-Recession & Austerity! A Trifecta!!
The bigger the party, the bigger the hangover.
The value of residential real estate in NZ has fallen by over 70% of GDP. When was the last time the gross assets of NZ households fell by 70% of GDP in nominal terms? This will be even higher in inflation adjusted terms.
Given that residential real estate is the largest asset class in NZ, I'm not sure when or if NZ households have experienced a larger fall in terms of percentage of GDP.
It's easy to shut a wallet. The real skill is spending taxpayer money in an efficient manner, but I concede that would be a mammoth task requiring a huge overhaul of Govt departments.
For example do these 8 brand new Kainga Ora houses need heat pumps in every bedroom? Complimentary Facebook video tour below:
They are definitely needed. But only because the design is shit, from an energy efficiency perspective. This has been happening all across Auckland in both private and Kainga Ora developments. KO have been spending a small fortune putting in multiple heat pumps throughout NEW hones, because they overheat so much during much of the 5 warmest months of the year. So that they are effectively unliveable
It’s coming down to three key things:
- lack of interest / understanding of passive solar design principles
- architectural design tastes: lack of eaves etc
- cost-cutting: eg. Not providing solar screens / shutters on west facing glazing
It’s so friggin’ dumb
Does convection not work or something? I.e. open window down stairs, open windows upstairs, hot air drawn out upstairs windows, cold air replaced from below.
Huge wasted expense because low income tenants won't be able to afford to run these heat pumps due to the power bills (even in summer). Send KO around to my place, I wouldn't mind a courtesy heat pump in a couple of our bedrooms. At least they'll get use.
Nope it doesn’t work
our place is a case in point. Opening all windows doesn’t really help much at all.
we needed to install ducted aircon after we moved in ($7k) as the evenings were unbearably hot. And some places in the development where we live were significantly worse than ours. The three storey ones (ours is two storeys)
KO have spent huge $$$ in doing ‘good urban design’, but can’t even get these basics right. Their urban designers love east and west facing dwellings, which is shit from a solar perspective unless you do a number of things to mitigate. Which they haven’t.
The organisation needs to be gutted
Hmmmm living in a place and experiencing it first hand doesn’t count for something? Having architectural and engineering qualifications doesn’t count for something? An Auckland Council report published this week highlighting how widespread the issue is doesn’t count for something?
What you have just said is correct in theory, but it’s just so fundamentally misplaced in practice it’s not funny. Especially for terrace housing which only typically has window openings on two sides. And even for detached homes its a bit of misnomer, unless you design in a sub-tropical / Japanese style with LOTS of openings (but that comes with cost / practicality issues)
HM: "Having architectural and engineering qualifications doesn’t count for something?"
It does HM.
But you've said you have a problem in this regard. But you have yet to say why the physics doesn't apply to you. With your qualifications I'd expect a quite succinct description in the design failures that you claim exist. As you've produced none ....
No I have given you the answers.
which is that for terrace housing it is almost impossible to get those physics to work for you effectively
Unless, you can do a number of things, which are cost prohibitive other than on high-end developments, such as wide floor plans, and shallow depth. As you will know, the most economically viable way to do terrace housing development is usually narrower and longer floor plans
over to you
Owner of a west-facing duplex, this is absolutely spot on. They were built to the standard at the time, which is heat pump in master, heat pump in lounge, no thought given to ventilaton or air conditioning. Opening windows does nothing on warm still summer nights, where it can be hotter inside the house than outside.
$20K of aftermarket heating and cooling just to make the house livable and what the building code should have been requiring at the time.
New Zealand has 200 billion of residents term deposits. Those deposit holders have recently been earning interest rates of 5-6% virtually risk free from the major banks. Someone with a lazy million on TD has been getting 60K a year on top of their super or other income. That is about to be cut in half in the same way others had their mortgage interest payments doubled.
Hi WestieAJ
If we didn't fudge our CPI and inflation figures to try to hide the dismal performance of our economy, the 5-6% that you refer to would be a significantly negative yield.
As for the "virtually risk free" description, have you read 'The Great Taking' PDF?
I would suggest every Kiwi took their time to understand what the DTCC is poised for...
D = Depository
T = Trust
C = Clearing
C = Corporation
The summary - well, all of the shares, securities, and encumbered assets that we fancy we own, WE DON'T.
It turns out that the DTCC, and its nominee company Cede & Company are now owners of a huge percentage of the stocks/securities/bonds etc around the world and that most of us are merely beneficiaries at best, not owners of these paper assets.
The very name that the acronym DTCC stands for is dodgy enough, but how sinister is the name 'Cede'? - the definition of this word - TO SURRENDER POSSESSION!!!
Cede & Co. is now the owner of record of all of our stocks, bonds, digitized securities, mortgages, and more; and it is seriously under-capitalized, holding capital of only $3.5 billion, clearly not enough to satisfy all the potential derivative claims - this massive anomaly is obviously cynically deliberate.
Furthermore, the fact that the derivative holders have first call on these assets in any crisis, and can just sell them off without any due process whatsoever, even perhaps simply in a situation of perceived risk, adds another layer of risk to owning/buying paper assets.
Add into the equation the international bail-in laws and all of this looks like a nasty accident waiting to happen. Remember too that the money you deposit in your bank account is up for grabs too - you become a totally unsecured creditor, the moment you hand over your cash. Cash is not money - it is credit - little more than an IOU or an implied obligation to honour something that has zero intrinsic value.
DERIVATIVES - the Frankenstein monster that lurks in the shadows
A few months ago I worked out the derivative/equity ratios on some of the largest U$ 'TBTF' (sic) banks - what I saw was a shocker, especially in regard to Citibank and Goldman 'Sucks'.
GS 1,117:1
Citibank 330:1
JPMC 187:1
BOA 103:1
Wells Fargo 97:1
With these totally outrageous levels of derivatives on their books, this situation poses an enormous risk to holders of paper assets all over the planet in any sort of financial crisis, let alone a systemic meltdown that could eventuate from the giant Western money Ponzi/casino at any stage.
I predict a wild ride. Indeed with the horrendous amount of toxic debt out there in the marketplace, at least from the lender's point of view, the natural progression of interest
rates, to price in this risk, should be up not down.
IOW there are no tools left in the l box because even 5% interest rates are not sustainable for much of our economy. After decades of mal-investment spawned by ZIRP and even NIRP interest rates, the system is broken and there is no other solution short of massive debt jubilees.
When I studied eCONomics in the early 70s ZIRP, let alone NIRP would have sounded like fairy tale land - low and behold - in 2019 European fairy tale land...
https://www.realtor.com/news/trends/danish-bank-is-offering-mortgages-w…
... quoted...
"In fact, they’re now negative. Denmark’s Jyske Bank, is now offering a 10-year fixed-rate mortgage at negative 0.5%. Additionally, Finland-based Nordea Bank announced Wednesday that it will offer a 20-year fixed-rate mortgage in Denmark that charges no interest, and the bank is preparing for the possibility of home loans up to 30 years in duration having negative rates. Currently, the rates on 30-year fixed mortgages average just 0.5% in Denmark.
When a mortgage rate is negative, a borrower still must make monthly payments toward their principal, but they ultimately pay back less than they originally borrowed. They would, of course, still have to pay other costs and fees."
THE LONG AND THE SHORT
The West has spent the last few decades living in financial fairy tale land, with a vast misallocation of resources into financial capitalism - now we will have to pay the piper.
No happy-clappy solution exists - even debt jubilees will be immensely hurtful because under double-entry accounting this debt is held as a corresponding asset on the books of the other party. Forget about soft landings - an eventual crash landing is a mathematical certainty.
Regards
Colin
Too true, HouseMouse.
Also, how many people who have been badly injured by the toxic jabs, or are already dead, don't feature in the unemployment figures. So too, with the thousands that need full-time care, this has created jobs that would otherwise not have been there in the first place.
Those jobs are not part of the productive economy - they are a result of a disastrous medical experiment rendering a significant percentage of our population, permanently unproductive. These numbers are now coming home to roost and will continue to have this debilitating effect on our economic performance.
https://www.youtube.com/watch?v=MUlz_33gZFI
Because the two last governments pulled out all stops to get us all jabbed up to the eyeballs with toxic experimental gene-editing cocktails, they have poisoned a large chunk of NZ's labour resource, just as they did in Britain (see the above link) with the particular poison that they chose.
The official figures are slowly emertging are utterly horrendous as they are, yet it is well known that historically the reporting of these adverse reactions to the data gatherers only ever captures 1-10% of the total injuries.
.................................
As I wrote recently on this site, NZ's massive total debt, which includes rampant unfunded liabilities, is well over 600% of GDP. This is a huge and growing burden on our productive performance.
That figure is mind-numbing enough as it stands, but when you look at the massive amount of fictitious GDP included in the calculations, the real situation is even worse.
Both nominal and PPP, GDP figures, are utterly misleading because they include all sorts of items that are not product at all. For example in most countries, the financial sector's interest charges are treated as a product - in reality, they are simply a transfer payment from the real economy into the financial sector.
None of this will be addressed. Just like Robertson, the new MOF appears utterly clueless that there are two distinctly different economies in NZ...
#1 The productive economy which contributes to real GDP.
#2 The parasitic financial economy, which annually drains billions of dollars of capital and liquidity out of the domestic economy and sends most of it offshore to the fatcat banking oligarchs.
Furthermore, NZ is like most Western countries, in that ~97% of the money supply is alchemized out of thin air by banks writing up mortgages. Needless to say, the vast majority is lent to buy existing assets, especially houses, not for the productive enterprises that would contribute to a healthy GDP profile - as such window guidance for allocating liquidity to the productive sector has been handed on a plate to the global private banking monopolies.
They lend on existing assets because this provides the collateral for the lender. In doing so they blow the asset bubbles that disenfranchise a growing proportion of our population from ever being able to afford to buy a house.
NZ is on the road to nowhere, and the root cause is being ignored. All of the eCONomic policy that the main parties push is nothing more than tinkering with the Titanic's breakfast menu when the ship had already hit the iceberg.
It should be no surprise to any of us that our GDP per capita is dropping faster (-4.8% compared to -4.3%) than it did leading into the 2008 GFC - of course it is - as a nation we carry far more debt than we did then, and now our nation's health has been massively compromised as well
Our iceberg field is the Western fiat currencies, and the unproductive financial economies that they have spawned - we are all in this together, sucked into a massive debt trap vortex. Japan is too - their total debt is ~1200% of GDP - they are toast. We have only heard a fraction of the story regarding their carry trade debacle.
Meanwhile, both the RBNZ and the NZ govt have this ship on full steam ahead. Gee - what could go wrong?
Great post Colin. I cannot disagree with you on any point you have eloquently described. Sadly neither issue will be discussed and strategized publically. Political poison.
What I would add to the above is the psychological warfare citizens have been subjected too is indeed having a relentlessly negativity impact! How many topics are now merely met in supposedly educated circles with derision - the true costs of lockdowns, the ideological petri dishing of youth, the racial divide and white shaming that's impacting mental health, Tin hat theory, climate change derangement, etc, etc .
My current role in Queensland is in Allied Health Education. The amount of New Zealanders our community clinic is treating with emotional scar's related to the COVID response is staggering!
This site is a rare gem in that, by NZ standards, an opinion is tolerated. If our family were ever to return to my country of birth, the setting need a rejig. Until then I'm happy to contribute to a society more generally based on competence.
Hi KiwiiSpain
I hear you loud and clear regarding the extent of the mental carnage.
We have a family member who works in a large hospital in the Brisbane area and both the societal physical and mental damage she reports is simply horrendous.
We now see the effects of infants being born that were poisoned in utero and who will have no quality of life, and often very limited life expectancy as well.
Neither have we calculated into the equation the future costs of the mass poisoning and gene-editing of our society's ovum and mitochondria stock - this will prove to be multigenerational carnage.
... quoted from the link...
"This is an especially urgent topic to get out into the public forum given that the ovaries are one of the body's organs where these toxic s-proteins concentrate. A mammal's entire lifetime ovum stock forms around the 20 week age in the development of a fetus.
This means that any female throughout the entire reproductive phase of their life run a dreadful risk of compromised fertility and birth defects in their offspring with just one single exposure to these toxins."
"Functions of Mitochondria
The essential function of mitochondria is to produce energy through oxidative phosphorylation. It is also involved in the following processes:
-
Regulates the metabolic activity of the cell
-
Promotes the growth of new cells and cell multiplication
-
Helps in detoxifying ammonia in the liver cells
-
Plays a vital role in apoptosis or programmed cell death
-
Responsible for building certain parts of the blood and various hormones like testosterone and oestrogen
-
Helps in maintaining an adequate concentration of calcium ions within the compartments of the cell
-
It is also involved in various cellular activities like cellular differentiation, cell signalling, cell senescence, controlling the cell cycle and also in cell growth.
Abnormalities in mitochondria can lead to mood disorders, neurodegeneration, cardiac problems, and cancer, to name a few."
.................
I was the first person in NZ (Feb 2022) to publically sound the warning bell on this long term cost.
Farsebook and all the other collaborators who helped underwrite this treason and mass murder, tried their best to nobble my article - it still managed to find its way around the world.
https://www.garymoller.com/post/we-wouldn-t-dream-of-inflicting-this-on…
Cheers
Colin
On the subject of dying after vaccination .....
https://alexberenson.substack.com/p/urgent-a-stunning-new-paper-suggests
Goes a long way to explaining the continued excess mortality being experienced around the world
I love it when the guys at Stats NZ pick out a table or graph that screams 'look what's going on you idiots!'
Yesterday's choice table was the industry contributors to the annual GDP fall of -0.2% (-2.7% per capita). You can see a graph of the data here. Look at the things that are preventing GDP plummeting further.
Top of the list is real estate! How can that be the case? Easy, a big part of the Stats NZ calculation for GDP is how much rent owner-occupiers would pay for their house if they were renting it (this is called imputed rent). So, real estate GDP is up because rents had a hot year. Rents are much cooler now, so expect real estate contribution to GDP to flatline or go negative over the coming year.
The other big contributors are almost all public sector driven - health, education, public admin, central govt etc. It is worth remembering that Govt deficit spent at 5.3% of GDP in the year ending June 24. Also important to note that once the borders opened, a lot of public sector-funded vacancies (nurses, care workers, ECE staff etc) were suddenly filled. Indeed, this is why the health spending blew out - they were assuming a high vacancy rate... whoops.
Now, Govt deficit spending this year is expected to be 2% of GDP and Nicola's purse strings are closed tight. Our current account deficit will be around 6% for the year. So, we need private sector borrowing to increase (net) by over 7% of GDP this year to have any chance of getting out of the slump. That would mean net private sector borrowing of around $30bn or $2.5bn a month on average. In July, private debt increased by about $1.4bn.
I don't think the size of current account deficit really matters for FX. What matters is whether the offshore investors that end up holding that deficit are getting a safe and relatively good return on the NZ financial assets they buy (particularly NZ Govt bonds). If RBNZ have to crash rates in the hope that this will get us out of recession, then the rate of return on our bonds will fall. That could shift FX quite a bit.
The current account deficit doesn't matter until it does - a ratings downgrade for example. You don't want to give investors a reason to focus on it.
What definitely is the case is you need positive interest rate differentials to keep the offshore investors interested. To think we can just cut interest rates to 2.5% is not really credible.
Especially since the Fed has indicated that 3% will be their terminal rate, as the neutral rate of interest is now structurally higher. NZ has historically maintained interest rates above that of the US.
https://www.interest.co.nz/bonds/92757/latest-hike-us-fed-funds-benchma…
Yes, this is why we need to take this opportunity to wind down private debt. We need a 5 - 10 year plan with public investment that reduces domestic private debts and brings the current account deficit down. There appears to be noone in Govt that either understands this problem or has a realistic solution.
"this is why we need to take this opportunity to wind down private debt."
When the housing bubble burst in the US during 2008, I believe that the US government expanded their debt, partially leading to the current Federal government debt situation. Then the recent deficit spending has taken Federal debt to even higher levels.
Under the conditions of high government debt levels and non residents financing government debt, what are the potential unintended consequences that people don't see?
Yes, basically. And those red bars can't go green unless those industries start to generate a decent surplus - i.e. their operating income exceeds their operating expenditure. That's what GDP is basically.
Now, how could all industries start to generate a surplus? Where would a net increase in the surplus come from? It has to come from an increase in the money in circulation - and, in NZ, that either comes from banks making more loans than they take repayments, or Govt printing more money than they tax back. Now, which will it be?!?
"Unemployment nearly doubled to 6.6% during the First Great Recession but is expected to peak at 5.4% in this cycle."
All prospective employees should abandon major centres like Wellington, Auckland and head to Riverhead. This is where you can be seriously rich and make 2 mil by selling houses.!
Riverhead....you've got it...where else can you make 143% on your investment in 5 years?
Nowhere else in NZ I know of. Keep giving Riverhead lots of exposure, another 100% would be good. And make sure you mention those new subdivisions being excavated there, and the billions that are going to be spent by Fletchers, Matvin and Neils.
Barbara Edmonds, the Labour Party’s finance spokesperson, argued the GDP data showed the Government was not fulfilling its promise to grow the economy.
“Almost a year into her tenure as Finance Minister it’s time Nicola Willis took some responsibility, invested in growing the economy and stopped the cuts,” she said.
Seems like Labour still struggle with the difference between growing an economy and inflating it.
It's cyclical. The whole man made thing is nonsense and that is what people are catching onto and accepting that to be what it is and getting on with life. It's the usual suspects that are creating fear as an excuse to waste peoples money on stupid stuff that are still the noisy brigade, but more and more they are ignored. You are right, it is situation normal. Lets go through a few of the scare tactics.
i) Polar bears. not talked about any more. Never became extinct, in fact double in numbers.
ii) Shrinking and disappearing islands. The actually got bigger and have more land mass now than before we were told they would disappear.
iii) Great barrier reef. Supposed to have disappeared about 10 years ago. Now bigger and more healthy than ever.
iv) NZ must get to net zero by 2050 or whatever. NZ is a carbon sink, why are we bothering.
The list is long, the lies are unsustainable, which is why people are not listening any more.
Fact - the last govt dug an circa additional $100 billion debt hole for kiwis that actually pay net tax to pay off. If we had created new roads, schools, hospitals, energy creations (damns, hydrogen separator etc) and the staff to operate all that, then great. We have not.
Can you point out what we have to show for that $100b again...?
Fact - the last govt dug an circa additional $100 billion debt hole for kiwis...
And the RBNZ? What role did they play?
Oh right. Their role amplified what the government did by by how much? Five times? Ten times? More?
Sorry Averageman, such posts are simply nonsense without qualification.
We let our house prices get way out of line with fundamentals, which we by and large don't tax, and our Net Zero commitments will hit us a lot harder than many other Western economies. We are also 2 1/2 hours east of an enormous high wage vortex which is sucking up our talent like something out of a War of the Worlds.
I can only imagine the gdp per capita figures are going to continue to get worse, given the the mass exodus of kiwis over to Australia, and the inflow of low skilled migration. Australia is the better country for working people. Our government purports to want us to close the gap with Australia by being even more 'business friendly'. Meanwhile, Australia offers better opportunities and lifestyle largely due to the stronger unions, modern award systems, and much stronger government regulation and intervention... We've become the poster child for market failure, regulatory capture, and low productivity - with parties of both stripes committed to the ideological dogmatism of trickle up economics.
"We've become the poster child for market failure, regulatory capture, and low productivity"
What about these case studies of other house price bubbles?
1) Ireland 2008
2) US 2008
3) Spain 2008
4) Hong Kong 1998
5) Singapore 1998
Numerous other house price bubbles throughout history. That is the nature and consequences of the system that the countries operate via government and monetary policies.
The bigger the party, the bigger the hangover.
We didn't see the kind of lunacy here that was apparent in those bubbles.
I've been a mania watcher for decades, and they're mostly distinguishable by out-of-control buyer enthusiasm. The 1987 NZ stock market crash was an excellent example. I visited the stock exchange in Queen St. when I heard what was going on. I went home and sold all my shares, and that was a few months before the crash. All people could talk about at work was which shares they'd bought. Classic contrarian warnings.
Nothing would deter punters from chancing their arms. Some mortgaged up to buy shares, and lost their houses.
I can remember bubbles in Europe and the USA, 100% house loans, stock market manias, sub-prime mortgages and other shonky financial deals.
I was at Canary Wharf when the GFC drama occurred and brokers were leaving their offices without jobs.
"We didn't see the kind of lunacy here that was apparent in those bubbles."
For those who were not tuned in or didn't know what to look for they may have missed seeing the signs right in front of them.
Here is a high profile economist at the peak:
https://ndhadeliver.natlib.govt.nz/delivery/DeliveryManagerServlet?dps_…
Missed the largest asset bubble in the history of NZ.
For people who were tuned in and who knew what to look for and where to look, there were indicators of extremely elevated house price risks in some geographical markets and price segments.
The biggest asset bubble in NZ history would have be the 1987 stock market implosion.
The market plunged 15% in one day, and that was just the start. By February the index was down 55%.
I did actually mortgage my house to buy shares, I was a pretty gung-ho in those days. I made enough to pay off the mortgage with some to spare.
"The biggest asset bubble in NZ history would have be the 1987 stock market implosion.
The market plunged 15% in one day, and that was just the start. By February the index was down 55%. "
Largest asset bubble is not the same as largest percentage price fall. In 1987, the ownership of shares was in a small proportion of households in NZ.
The entire stock market of NZ is currently valued at approximately 41% of GDP. A 50% fall would represent a loss in value equivalent to 20.5% of GDP.
The entire value of residential dwellings in NZ at the peak was valued at over 500% of GDP. A 16.7% fall is a loss in value equivalent to over 70% of GDP. When was the last time any asset class in NZ experienced a market value fall equivalent to over 70% GDP? And remember this is the asset class which provides collateral to over 60% of bank lending.
60% of households own their own home in NZ and is likely to be the largest asset owned by most households.
I bought a property about 15 months ago, drove a hard bargain and got what I think is a steal.
This is the best time in years to dip your toes in the property water. Owning your own home is compulsory saving, there's few better bets out there. Stock markets worldwide are making new highs...and October is just around the corner.
In London the average home is 13.9 times the typical household income.
In Auckland it's 7.9.
I read on here all the time that kiwis should be investing in alternative assets....like what? Air NZ, Wagyu, Du Val, Cannasouth?
I can only imagine the gdp per capita figures are going to continue to get worse,...
I expect your maths is likely great, April Spruiker, but could you explicitly reconcile the FACT that if the 'per capita' figure is going backwards faster than the gross nominal GDP figure, then perhaps there are many at the top who are actually doing pretty damn good from the current situation?
Economic textbooks may recommend increased government spending during a recession, but there is little room for this now. The Crown is already running a deep deficit and carrying a heavier debt burden than in previous decades.
Yes to the first bit. Not really to the second and much of that is clearly self inflicted via austerity policies.
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