I actually felt quite mean.
After penning my honest thoughts on the year ahead in December 2021, I wondered if I had been rather too downbeat with my assessment of how 2022 was shaping.
As it turns out though, I UNDERPLAYED how grim things were going to be.
I expressed concern about inflation, which was then tipped to peak at 6% - currently it is 6.9%. I was concerned about Omicron, which was then the new variant on the block. Well we get several thousand cases a day - though the health authorities, touch wood, do seem to be coping. I wondered about the possibility of something of a bank credit crunch in the wake of new credit rules at the end of last year - and we got one in the early part of this year. And I wondered about the possibility of falling house prices. They ARE falling.
I didn't talk about the war.
As of early December Putin had not yet clearly announced his intentions to invade Ukraine, so the war and its resultant inflationary chaos have added extra unexpected and unwelcome unpleasantness to the scenery this year. And then there's been China's problems with Omicron and more of those pesky supply chain issues.
Quite a lot to fit into what's been not quite six months of 2022.
Essentially, all the things I thought might be key negatives have turned out worse than I might have hoped - while there's been the above mentioned couple of very curvy curve balls that I didn't mention at the end of last year. It's all blended into an unsavoury mix for the first half of the year.
So what about the second half?
I'm assuming the big issues for the rest of the year will be the ones we already have. But I freely concede that given the way nasties have kept jumping out of left field, the possibility of something else emerging shouldn't be discounted. Unpleasant virus surprises or another emerging geopolitical risk are two obvious 'maybes' to consider.
But, to deal with the known risks, for me employment/the labour market remains the biggest single 'watch closely' factor for New Zealand's immediate future.
Employment is a shining beacon of positivity in a very dark environment at the moment. We are working and we are getting paid every month. That helps.
As at the end of the March quarter the unemployment rate was only 3.2%. The next official Statistics New Zealand figures, for the June quarter, are not due out till August 3, but other indicators have been suggesting that the labour market has remained very tight.
That's very good. Actually it's crucial - even if employers struggling to find staff might disagree. With interest rates going through the roof the worst thing would be for large numbers of people losing jobs. Because then they might struggle to meet mortgage payments. And that could lead to forced sale of houses. With the proportion of the NZ economy that's wrapped up in the housing market. That could be bad. Very bad.
So, keep a very close eye on those unemployment figures. For me these are absolutely the key domestic indicator to watch for the rest of this year and into next. If unemployment stays low this will be a saving grace, a vital one, amid some genuinely difficult economic conditions.
If the unemployment figures start moving up, well, that could be a problem. A big problem. That could be when we see the dreaded Stagflation. I think the world will do well to avoid it and, to be honest, I don't think we will avoid it. I think it's a very real (possibly the most likely) scenario for next year.
If we look at inflation, the RBNZ has entered into a kind of death or glory struggle with it, hence the sharp rises in Official Cash Rate. Since October last year the OCR has already been hiked from 0.25% to 2.0%, with another 50 point rise seemingly inevitable at the next review on July 13. The RBNZ's expecting annual inflation to hit 7.0%, which it thinks will be the peak, when the Consumers Price Index figures for the June quarter are released by Stats NZ on July 18.
As indicated higher up this article, inflation has unfortunately kept surprising on the high side. Will a 7% peak be the top then? I really don't think you can say that with any real confidence yet. (I would say 7% WON'T be the peak.)
In terms of the Ukraine conflict, all outcomes (some dire indeed) are still on the table. The portents are still particularly ominous for fuel prices and food availability (and hence food prices). Really, anything could happen with this situation. There are many potential bad outcomes, with the only goodish one being if the war stops very soon. But I can't see that at the moment.
Then there's China. Other countries (notably little old NZ) have followed the science when it comes to Covid. Remember, we decided very early on we would have to take our lumps with Omicron. Taiwan, Singapore and Australia were other elimination fans that have now trodden the same path. But not China. Unless there is a change of plan in China (and it's very political, so probably not), it's difficult to imagine that there won't be further lockdowns - and therefore yet more disruptions to supply chains. So, more inflation.
Regardless of whether the inflation rate keeps increasing, the die seems cast for inflation to be much more of an ongoing, structural, presence over future years than it has been for decades.
If inflation does hold up at very high levels (or even increases again), what will be the Reserve Bank's approach? At the moment it is hell bent in tightening monetary policy (IE putting up interest rates) till people are convinced and will stop expecting inflation. That's because it's the inflation expectations in people's minds that lead to actual inflation in future.
At the moment the RBNZ is signalling a high point for the OCR of about 4%. The RBNZ reckons this will see even short-term fixed mortgage rates hitting 6% (the one-year rates are already not far off 5%).
How much would mortgage holders and the housing market be able to take? My gut feeling is that if the RBNZ squeezed mortgage rates higher than 6% we could be in a world of trouble. Some economists are already suggesting that the falling house market will force the RBNZ to back off next year.
Again, a lot hinges on the labour market staying strong. But even then, even with people in full employment, the sheer size of some of those mortgages out there could get too much.
If actual inflation doesn't moderate considerably, and if those expectations of future inflation don't start coming down, the RBNZ would face a huge test. Would it need to ignore the 1%-3% official inflation target? Or just keep squeezing interest rates till something pops? But of course, if much of the inflation is imported - and the Ukraine/China situations say this might continue to be the case - merely keeping flogging a dead horse here with rate rises would be self-defeating.
This is why the RBNZ, and the rest of us for that matter, need to keep a good handle on just how well or otherwise NZers are handling the cost of living crisis. We need early warnings if things are going really wrong, so, that an evasive course of action (which could be laying off interest rates) might be taken.
Anyway, there's so much more that could be said, but that's pretty much my thoughts on where we are (nearly) halfway through the year. Things might turn out better than it looks as though they will. But I did have that hope at the start of the year as well...
Earlier this year, I invited people to strap themselves in. All I would say now is, hold that pose. Keep that buckle tightly locked. Relax. And smile. And breathe...
151 Comments
I’m not sure who’s saying the health authorities are coping. Because on the front lines that is absolutely not the case. Many from what I’ve seen saying that were a week or two away from needing to move the country back to a red setting. but how effective would that be.
don’t listen to the Minister though. Who accused John Bonning of fibbing:
“The Australasian College for Emergency Medicine (ACEM; the College) wishes to respond to misleading comments attributed to Health Minister Andrew Little and publishedin the New Zealand Herald on the 10th of June 2022.
ACEM, the peak body for emergency medicine in Aotearoa New Zealand, stands by Immediate Past President Dr John Bonning’s assertion that emergency departments in New Zealand are under extreme and unprecedented pressure. The College maintains that data supports Dr Bonning’s comments and will be reaching out privately to Mr Little to provide relevant supporting information, and to discuss the pressures on EDs.”
Aotearoa New Zealand Faculty Chair Dr Kate Allan said, “Emergency doctors know an emergency when we see one and right now, what is being experienced in emergency departments across Aotearoa isn’t safe, it isn’t fair, and it isn’t sustainable, but we can fix it – together.
with our health system at breaking point now. It won’t take much more for either people to be dying I’m in corridors. Or the country having to tighten up the belt again and face some heavier restrictions again to get through winter. Probably both things at this point.
“accused John Bonning of fibbing,” other way round I suggest. Minister Little has form. For example in October 21, invented ICU capacity. When the actual clinicians had had enough and a spokesperson challenged him to advise the whereabouts of one extra bed he said he didn’t know where they were getting that information from. Ah well now, ICU capacity is a daily tally, coordinated nationally. Think White Island, patients in an emergency need to be moved to throughout the hospitals. That’s how the clinicians know and where they get their information. You would think a Minister of Health would need to know that too, wouldn't you.
2 family and friends experiences in a hospital. their departments (2 different ones) are both in crisis. Severe staff shortage, regular 12 hour late notice shifts with no breaks. people fed up with pay rises way short of inflation and the rates their skills and experience sit in the international market. Obesity, demographics, and the end of stoicism. It's ugly in health.
yes I have heard from a family member who teaches high school that there has been a significant deterioration of student behaviour since the lockdowns. They used to have about a third of their classes with hyper/bad behaviour issues, now it is about 2/3 of their classes. Many senior teachers are planning to stop in the next few years.
When I went to school in the 1960s we were strapped, caned & eventually expelled for misbehavior. And then your parents would take the jug cord to you for embarrassing them in front of the school.
We've now got family conferences where no one accepts responsibility & blames the teacher.
Yep I went through that, a bit earlier. But it wasn’t right at all. Then the teachers wielded far too much power, and unchecked, some of it was little less than abusive bullying Throughout my school days I feared the great majority of my teachers and that overshadowed my education certainly. Now though it is the other way round. Teachers are vulnerable. We have extended family teaching who have to park their cars in hiding each school day. Male teachers are a easy target for accusations by female students, one reason why their numbers are falling steadily. The pendulum never r stays vertical does it.
Talking to a hospital specialist yesterday,he was very pessimistic, lots of good staff leaving, so this is putting more stress on existing staff, They don’t have enough staff to man the theatres, staff morale very low due to years of underfunding, lack of pay rises , and then they watch TV and see Andrew Little saying we have spare capacity in our ICUs
The specialist reckons it all going to implode very shortly
Why has this government thrown money at everything except the health system during a pandemic?
If they had over spent on the health system at least that would be an investment in the future. As it is what do we have to show for all the money they have thrown around - high inflation, crazy house prices?
I think anybody paying attention should be asking themselves "what's going on here? Is there something I'm missing? Surely their not that incompetent?"
Agreed, I ask myself that question frequently. I think it's driven by pure self-interest. They are terrified that if house prices drop substantially they'll be dead in the water politically. It has nothing to do with the what's in the countries best interest. Neither major party has our interests at heart.
You're right (imo) that is the only logical answer. So we have to ask ourselves (again) are we going to stand for that? That's not democracy. Neo-liberalism may have ruined capitalism, but hard left socialism isn't the answer either.
I really think we all need to wake up and see that our democracy needs a reset. I can't solve the problem (because I'm not a society). But I think most can all agree the current model isn't working.
But apathy and voting for the status quo definitely isn't the answer.
Sorry no real answers. It's a Sunday I've had a couple of whiskeys, and it's great to have a community to voice your thoughts and opinions with.
Long may Int readers keep an open and civil mind.
In 2022, we now know that it was the Proud Boys who led the attack on the Capitol. And Liz Cheney has outlined the case that the rioting was orchestrated. If this is so, indictments are coming. Let me guess:-
Fake electors and J Eastman, members of the command center at Willard Hotel and financiers.
As the net closes, even Mr Trump is not safe.
Carlos67,
I really really hope I'm wrong, but I think it likely that the the next President will be from the Rebublican side-----and if so, it will probably be Trump. There is nobody he won't trample on, even his daughter. If so, he'll be brownnosing Putin in double quick time. Any of the 'patriots' who invaded Congress will be pardoned and what is left of American democracy will vanish. The Founding Fathers would be appalled.
In 2022, I can see some similarities between Russia and China.
They have security concerns warranting military action. Frequent warnings to other nations via foreign ministry about politics, trade and other. And it appears that the leadership is concentrated with one person, absolute and irrefutable power.
Ah well, don't ever say we weren't warned. Those of us predicting it panning out something like this a decade or more ago would now like all those who accused us of xenophobia to take it back (fat lot of difference it would make)
We never had anything against the Chinese people, however we had great foreboding about their government.
I think normally when a user is banned their profile page comes up with a 404 error.
Same date for me too. The CCP has performed remarkably well - lifting most of your population out of extreme poverty is really most praiseworthy. And the Chinese emphasis on science and engineering has borne fruit - they do create not just copy. It was the treatment of the Uighur that changed my mind - if they can do that to their own people just think of what they might do to foreigners. Terrifying.
Yves you'll notice in this article that the Fritz account is still valid. If a user is banned, as a few have been lately, they're account name is blacked and account details can't be accessed (one or two of which are in supplied article). You may have the wrong end of the stick.
https://www.interest.co.nz/property/109644/economists-see-housing-chang…
Hi singautim,
I am a Chinese citizen who have been living here for almost 12 years. Pre Covid, we were making yearly trip to China to see families and friends, I cannot even tell you what is going on there, with due respect to the resource you watched or read, please take it in with grain of salt.
there is not truth until you find something you want to believe in.
There is a Scandinavian saying: " There is no such thing as bad weather, only bad clothes".
The fact is that most of the "bad weather" in this article is CAUSED and/or EXACERBATED by the high debt levels that people hold, and the high house prices in NZ. Households in the 1970s were more resilient in the face of inflation because they had much higher saving levels, much lower debt levels, and they weren't already tapped out in terms of both parents working, etc, before high inflation hit. Most households in 2022 have extremely low resilience against inflation. They are already overburdened, overindebted, both partners working, with very low savings rates.
Economic storms always come along. The problem with the NZ economy is that we have been swimming around naked and aren't prepared for bad weather.
We should be much better prepared for inflation. As soon as Covid hit, we had supply chain experts and logistics experts warning about supply push inflation. All the amateur and armchair economists on this site (and all over the internet) spent the last few years debating whether we would get inflation or deflation. We understood that there were risks and uncertainties.
And yet the RBNZ stormed full steam ahead with their deflation narrative. They never acknowledged the inflation risk. They never prepared for the inflation risk. Every action that the RBNZ took since 2019 made us less prepared for inflation, and more vulnerable to its effects:
- removal of LVRs
-"emergency" low OCR
-pumping the housing market and the "wealth effect"
- telling savers to go "further out on the risk curve"
- telling banks to "lend courageously".
- telling people to expect negative interest rates soon.
- mortgage holidays for everyone, including property speculators, including landlords, including people who had expensive ski chalets in Queenstown. A sensible RBNZ would have allowed mortgage holidays for homeowners only.
If we had a competent Central Bank we would be much better prepared for this current bad weather. They should have let the housing bubble gently and naturally deflate in 2020. They should not have had a 0.25% OCR at a time when inflation was a clear and present danger. The RBNZ recklessly drove our economy into a wall.
Well said Fitzgerald, I think you have nailed it. For many years it has been said that NZer's are not good savers but it has been worse in recent years where huge personal debt has been accumulated with little or no savings.
With no exposure to any downside many felt that there was in fact no risk, so continued with their financially reckless behaviour. Yes Govt and RBNZ have certainly done little or nothing to mitigate the problem, and could said to have actively fueled the fire but at the end of the day we all make our own decisions with volumes of information available to us.
Of course, there is a direct correlation between rent to income and house price to income ratio.
As you say, it's really about the amount of discretionary income you have and the amount of work you have to do to achieve that.
And over the years, in spite of working longer hours and two-income plus households, our discretionary income has fallen.
There is no resilience left in our economy. We were struggling in 'peace time' as a country and now with many more negative outside influences, there is very little to draw down on that is in our direct control to mitigate.
65% of NZers wealth is tied up in property, in the USA it's 35%. We were one of the first countries in the world to instigate a 40 working week, now we have one of the longest working weeks in the developed world.
We have gone backward in almost any metric you want to measure us against our peers.
Today any young approaching bank for home loan is advised to tap their parents existing equity.
Brain washing young, as how parents lose nothing in providing their house equity unless they do not trust you, leading to disharmony in families where parents are not able to or do not want to and worse if one parent agree and other does not.
Last thing parents nearing retirement need is another debt/ liability but a FOMO had been created that it is now or never, which is so not good.
Hindsight is 20/20. RBNZ acted to keep people employed and businesses operating when the country was shut from the rest of the world. It hasn't happened before. The housing bubble was a consequence and with a bit of luck it will cure most people from speculating on houses.
Like the funding for lending programme? The idea was that lowering borrowing costs would enable the banks to drop interest rates and savings be passed on to the borrower. Little did the RBNZ know that lower borrowing costs also enable higher amounts to be borrowed......
De-globalisation will increase.
NZ needs to think about self sufficiency not tapping in to a global supply chain. Really hope the Govt is looking in to a refinery re-start for example.
Present thinking seems to me to be that we will go back to 2019 mode - that ain’t happening. The world is a very different place now.
This govt thinking that strategically? Haha!
But while we can speculate or fantasise about a strategic and forward looking government, they should have been building plants to manufacture cross laminated timber years ago.
Manufactured at scale it would offer numerous benefits, including building supply chain resilience, reducing building costs and better environmental performance.
The government need to build a LOT of public housing. And much of that will Need to be apartments. Mass CLT would speed building up and reduce cost, as well as providing environmental benefits. If the government started doing it, it would rapidly build up expertise and skills in its deployment.
Right now CLT is niche. Everywhere in the world where CLT is catching on, eg. Sweden, the government has had to drive things forward before the private sector follows.
Carter Holt Harvey have a LVL facility at Marsden Point, ironically right next door to the oil refinery. They cut back 2/3 of the workforce in 2020 to focus on domestic supply only. Previously around 90% was shipped to Aussie. Point is we dont even need to build new plant, it is already there. To rub salt in the wound even when they were operating at full capacity the vast majority or raw logs still went straight past their driveway to the port to be exported...
A few possible known global risks that I believe we need to keep an eye on are the following:
- China invading Taiwan
- Further expansion of conflict beyond Ukraine
- Increasing numbers of Long covid and its impact on the workforce
- A new covid variant
- Monkeypox
- Economic hard landings
... some good news from New York , an early stage colorectal cancer drug 100 % cured all 14 patients , after 6 months .... ramped up larger trials will now proceed ....
Nevertheless , I think we can face the world with a smile of confidence .... colorectal cancer is on the way out , joy !
This is what happens when central banks supported by government print and throws cheap and easy money for years.
Oxygen is required to breathe - life, throw too much and .......
We are in a situation created by RBNZ in guise of pandemic with no remorse .........intoxicated with power.......time for change
https://www.nzherald.co.nz/nz/building-company-collapse-aucklanders-sou…
Who is to be blamed ?
Surely the builder but can government and RBNZ get away for creating an environment by supporting and promoting the ponzi.
...and if you can close your eyes to capital losses.
If you can sit happily with your fixed interest mortgages and watch the sticker price of your properties decrease by 30%... 40% ... maybe even 50% then, sure it's just a spectator sport.
You'd be a rare man indeed. Most people couldn't stand it. Most people would want to capitulate. That's how boom and bust cycles work. That's why we will see a rush of listings onto the market as prices fall... landlords panicking and trying to get out just as buyers are fleeing.
These things are predictable, because we see the same human psychology play out again and again, in Japan, Ireland, Spain, USA... and soon NZ.
Was quite gutted when we had to break our 3.05% for 5 years late last year due to trading up. The bank insisted we settle that loan and then draw down a new amount. But 6 months later a 4.95% fix for 5 years is already looking good.
Rates dropping again in the next 4.5 years to below our fixed rate is certainly the lesser of two evils.
This is how 2022 is playing
House sold in Jan 2021 for $905000, a do up property. Spend another $30000 to $45000 and sell for $1150000 after 5 months in June 2021.
https://www.oneroof.co.nz/estimate/43-ewhurst-place-goodwood-heights-au…
Now the house bought must not have been for owner occupier, otherwise why would it be in market just after 9 months ( unless have other reason and do not know but doubt). Now again in Market since February end and started from 1.3 million expectation ( justify as that is exactly what happens in any ponzi) .Now after 4 months of listing, will be lucky to getaway with 10% to 15% loss unless have holding capacity.
This is what happens when ponzi burst and this is just the beginning and will continue and be worse going in 2023 or maybe 2024 or 2025.
Only thing to be debated is when will the recovery process start and that too will not be before facing the full wrath of crash.
So a few over indebted property owners force interest rates down and the rest of us ie the vast majority just have to suck it up with high inflation. If we enter that cycle inflation will know no limits because it will become self fulfilling and a repeat of the 70s will become inevitable many losing jobs higher cost of living for all no wage growth but the people with high mortgages will be equally affected and probably fail anyway. Our dollar will tank other countries who are not foolish enough to follow such a course will attract our skilled labour force .
That is not what I am saying I am responding to the comments made by people that use mortgages being high as a reason to hold or reduce interest rates if this is an economic decision made then my comments will reflect the reality of that . I made no reference to the current mortgages being responsible for inflation .
A gold bug's perspective : Protection From a Currency Collapse
Commercial banks in the Eurozone and Japan are uncomfortably leveraged and unlikely to survive the mixture of higher interest rates, contracting bank credit, and an economic downturn without being bailed out by their respective central banks. But so massive are the central banks’ own bond positions that the losses from rising yields have put them in negative equity. Even the Fed, which is in a far better position than the ECB and BOJ, has admitted unrealised losses on its bond portfolio are $330bn, wiping out its balance sheet equity six times over.
Media have made a big deal of the US 10-year rate trading at 3% for the first time since late 2018..
As a sidenote, based on average Treasury yields at the various points that the Fed has expanded its balance sheet, we estimate that the Federal Reserve’s $9 trillion balance sheet is now underwater. If the Fed was an actual bank, and if banks marked their assets to market value, the Fed would be insolvent. Of course, the Fed doesn’t mark to market, nor have banks done so since the early-2009 market low, when the Financial Accounting Standards Board relaxed FAS Rule 157 (which is actually what ended the global financial crisis – by making bank insolvency opaque). In effect, the Fed has created liabilities for which there is now no corresponding asset, and now finds itself wandering into fiscal policy, which is the sole domain of Congress. Needless to say, nobody cares.
Even without capital losses (which can be recovered by holding the bonds to maturity), the Fed will also go underwater if the interest it pays on reserve balances exceeds the interest it earns on the bonds it purchased. In this case, the Fed can be expected to book any loss as a “deferred asset.” As Ben Bernanke explained before Congress years ago, when the Fed books a loss as an asset, “it is an asset in the sense that embodies a future economic benefit that will be realized as a reduction of future cash outflows.”
What Bernanke meant with that hand-waving gibberish is this: Fed normally returns the interest received on its asset holdings back to the Treasury, for the benefit of the public. If the Fed’s bond purchases lose money, that interest will instead be used to cover losses. See, “it is an asset in the sense that it embodies a future economic benefit [to the Fed] that will be realized as a reduction of future cash outflows [to the public].” Yay. Link
From USA, if interested
https://finance.yahoo.com/news/a-severe-recession-is-possible-economic-…
Try telling any of my doctor friends that the health system is coping and you are likely to get a punch in the guts! Patients are undeniably suffering because of the explicit rationing of our threadbare health capacity. Employment rates are already wobbling - unsurprising given that consumer spending is being diverted directly into higher interest payments, and directly / indirectly into imported non-substitutables (fertiliser, petrol etc) and increase rents. The drop in aggregate demand has started - and this will only get worse as higher mortgage rates filter through to $330bn worth of outstanding mortgages.
The key drivers of our CPI 'score' are all heading north quickly (rent, petrol, building costs, rates, food) - so we can absolutely expect CPI to stay around 7% for the next quarter. The next Household Living Cost Price Index could even be higher (includes interest payments). Hiking rates might shave a bit off the edge of CPI (building costs?) - but will the recession it will cause be worth a percentage point reduction in CPI? Throwing loads of people on the dole so we have 6% inflation instead of 7%?!?
And, when are economists going to stop assuming that "inflation expectations in people's minds... lead to actual inflation in future". This is simply untrue.
"So, keep a very close eye on those unemployment figures. For me these are absolutely the key domestic indicator to watch for the rest of this year and into next. If unemployment stays low this will be a saving grace, a vital one, amid some genuinely difficult economic conditions."
If unemployment figures remain low then the RBNZ will have failed in its objective to bring inflation under control.
The last decades of artificial currency printing has allowed the world to self inject endless debt like a crazed junkie. It should always be expected that we would have to go cold turkey at some stage.
NZ avoided the truth in post GFC due to Chinas printing. Then the US got back on the wagon and they have played currency suppression chicken with each other since. Now both are in a corner with rates near zero and inflation roaring. Central banks are finally reaching for the flusher.
NZ and others are just collateral damage.
I am not sure that the US or EURO Zone can kick the can any further down the road. It seems to me that defaults and write downs / offs are the order of the day. interesting times. Biden's approval rating is incredibly low. I think Elon Musk may have a run as an independant.....
It’s certainly time to batten down the hatches.
Think carefully about what you do for a living right now, and how exposed that is to the looming carnage. The job market is still hot, so it’s still quite possible to move to a job that is less exposed.
Government jobs rather than private sector jobs, for example. Work in infrastructure rather than residential development, as another.
Excellent advice. I would say not public sector this time tho... odds that tax income for government isnt slashed and with it infrastructure projects and public sector jobs are low. Plus once you have been there you arent much use to a private business anymorr.
People will have less jobs (less tax more benefits), businesses will look to cut salaries for remaining staff (less tax), i reckon rates will have to drop (councils have ratcheted them up to match new house prices that will drop.. people cant afford silly rates in an inflationary environment and what happens when someone is on benefits to rates?).
Govt will likely need to borrow more from WorldBank to bailout banks and businesses after a house crash
Government and council interest on all their debt is rising when income is dropping plus already insane interest on the printed money will also rise as tax incomes drop.
A ton of people will exit nz - thosiin serious neg equity, or young or renters with no ties and better prospects elsewhere Gone. (Their tax with them and a further impact on house prices).
I reckon a ton of not started or pointless projects (eg $300mill library in tauranga) will just stop.
There are probably some positives.
New Zealand is really pathetic. Take a look at Qatar and the world cup, they have built like what ? a dozen stadiums for a single event. Perhaps the CHCH council need to contact them, some of the stadiums are designed to be dismantled, shipped and put up again. 10 years CHCH and all you still have is a bare bit of dirt.
You need to find better comparisons. South Africa has a population of 60mil and a GDP almost four times that of NZ.
Qatar has the fourth highest GDP per capita in the world.
Nearly everyone lives in one city, Doha. Most of their wealth comes from prodigious reserves of oil and gas. Wikipedia:
Qatar has proven oil reserves of 15 billion barrels and gas fields that account for more than 13% of the global resource. As a result, it is the richest state per-capita in the world. None of its 2 million residents live below the poverty line and less than 1% are unemployed.
... not just NZ as a country , many of its citizens are fricking Oarsome with a capital " o " too ... the ones who aren't are in a gang somewhere , peddling meth , or are a politician of some level ...
We're finally working our way through Covid19 , the house price orgy is deflating , the economy is facing a necessary recession , necessary to wring out the excesses of an incompetent finance minister & reserve bwank ... some good news amongst a sea of gloomsterisation ... glimmers of hope ...
Another great article David!
As at the end of the March quarter the unemployment rate was only 3.2%….That's very good. Actually it's crucial
It is indeed! I think we don't we fully appreciate the delay between higher interest rates (the cause), and higher unemployment (the effect). It takes time for mortgages to come to their term, be re-fixed at much higher rates, and then more time for businesses to lay off employees, as the mortgage holders spend less, and then even more time until the latest unemployment figures are released. I believe the result on employment, from higher interest rates today, won't be felt until early 2023.
Personally, I have no doubt that 2023 will be worse than 2022 in NZ, and I still believe that the RBNZ will be forced to reduce OCR again, in roughly the middle of 2023.
It isn't high interest rates, it's interest rates that are still below normal. We had an OCR of 8.25% back in 2007 when the unemployment rate was 3.7%.
We still have a long way to go before it hits 7% like it was back in 2012 and we don't have 70,000 migrants being dumped on our doorstep every year.
I think you're on the money Yvil.
What Orr would like to do, and what he will be able to do are 2 very different things. I also see the OCR as levelling out at 3% and coming back a fraction. I also agree that this is still stimulatory as inflation will be much higher and that should be of grave concern to everyone as the economy can not be weaned off central help.
Primarily there are businesses that have survived or thrived over the last two years because of the artificial economic environment constructed through cheap and available money. That environment is changing fast, the speed of which is being further accelerated by the wealth effect dissolving as house prices correct. The real economic environment is taking shape and with it a stark reality. The canary down the mine is that some of the US's biggest employees have frozen new appointments (Tesla being the latest but Microsoft is up there too). Unemployment in NZ will start to rise in 6 months or so and that will be a signal of worse to come.
My prediction is that we will be in a strong recession with the OCR only being modestly raised making that a hard ceiling. This will reduce inflation to 4-5%, the remainder being supply chain driven so stagflation is coming. Other bigger economies will stomach a higher OCR and NZ will suffer a currency devaluation as a result. Influencing the NZD will be out of the RBNZ's reach due to the other constraints discussed.
Rates will continue to go higher and RBNZ will just follow the FED and rest of world NZD is already sinking making inflation higher. As house prices crash building companies and people over leveraged will become insolvent making the housing market spiral down quicker this will last for a number of years and be one of the biggest downturns in NZ history. I don’t think you will ever see emergency low interest rates again as this is what helped house price’s become 12 x average wage couples income for 3 bedroom box In Auckland which is not sustainable.
Spot on. Exchange rate is the king. So OCR goes up as needed and housing and other assets will have to fall.
If the Nz dollar falls any further a lot of people (who are already struggling to make end meet) wont be able to buy food and accomodation and crime and social unrest will soar uncontrollably.
We are already seeing the start of the crimewave and we already see we have no way to stop that.
So the only way is higher interest rates to match the rest of the world and keep our currency stable.
I think a lot of mid to upper class are really oblivious to the poverty at the lower end at the moment. It is already at breaking point.
Good points. Another canary down the coal mine will be the accumulation of tax debts in New Zealand. With half of us either self employed or running a SME it would clearly show how tight the real world really is. (And the taxman has been instructed to go soft on debtors by Grant)
Dear David. Great article! You forgot only to mention the reluctance or, incapability, of the OPEC and others to pump more oil. Secondly the world has not invested in processing commodities, rather in to fancy high tech $$ burners, so that is the reason why Gasoline, Diesel and Ethylene prices are increasing very much faster then the WTI/Brent. Thirdly the RBNZ has to be seen as dealing with the inflation otherwise the currency markets will take the NZD much further down so either higher interest rates or a more increased cost of living will nibble at everybody's bottom line. I agree with you that there be interesting times ahead!
if the RBNZ just focused on local inflation I doubt we would be in this mess right now. And if we were we would have a plausible chance of defeating it.
It seems weird that little old NZ thinks we have any chance of controlling imported inflation or deflation. I guess if interest rates go up enough then the currency might too, but actually it will cause a massive recession and then no one will be buying $NZD.
A great deal of d&g posted above and for good reason. We live in a manic world, pulled to its extremes in all directions. Indeed, it looks a bit like a covid virus, but I digress. A lot of poor & mediocre decision-making from western societies over a long time period has been exposed in Germany this year. In effect, what we are watching is the EU underwriting a war against itself which defies any logic that I can muster. It does, however, showcase, the stupidity on offer. And it's not just us.
The global debt load, now well in excess of $300 trillion, is beyond most peoples understanding including mine. Suffice to say it will never be paid back & someone (or many) is going to have to take the fall. That someone(s) could include small indebted countries like NZ which, when you're sitting in Washington or Beijing or Brussels, don't even make the discussion agenda.
Biden's a puppet for the angry left & we can already see pushback against the so-called progressive movement in places like San Francisco, the most woke of all the woke cities, in their recall drama (see WSJ). No law & order is the first signs of a crumbling society. Please note Ms Williams. And all of this is coming out from our tertiary, media & state services designed to collapse the capitalist ways & divide democracy, but for the life of me I can't figure out why? Why would you destroy what is still by far the best life available on planet Earth in this day & age?
Someone please, tell me why?
"Why would you destroy what is still by far the best life available on planet Earth in this day & age?"
Capitalism has enhanced the lives of many, but strip mined the lives of others, it is also destroying the planet, it's time is up and now all have to get down to the business of seeing to it that our kids, their kids actually have a planet to stand
Capitalism is destroying the planet but in most capitalist countries you can protest about it. Consider the alternatives: the USSR, N.Korea and various theocracies also show no respect for the environment but you cannot express an opinion. The way capitalism is worse is in it being far more effective / productive.
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