ANALYSIS: If you are a pessimistic sort of person, then here are some things to fixate on. The ANZ’s most recent Business Opinion Survey showed that a net 48% of businesspeople have a negative outlook. The average proportion is 13%. There has been no growth in job numbers in our economy over the past nine months and the volume of spending on retail goods and services fell 2.3% in the June quarter after falling 0.9% in the March quarter.
The UK and the rest of Europe may be in recession for the coming year as a result of the energy price crisis caused by Russia’s invasion of Ukraine. China’s continuing pursuit of an eradication policy for managing Covid-19 means supply chain problems affecting NZ businesses could continue through much of the coming year.
Most borrowers in New Zealand are seeing their fixed mortgage rates reset to about double what they had been locked into as a result of the Reserve Bank raising the official cash rate quickly from 0.25% to 3% on the way towards probably 4%.
House prices have fallen 10.8% on average around the country so some people feel poorer and are cutting their spending. We all feel poorer as a result of the 7.3% rise in the cost of living in the past year.
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I could go on. Suffice to say the negatives dominate for the moment and probably will do so for the coming year. But that does not mean we will slip into recession and even if we technically do, it won’t look like any recession you have ever seen before because the labour market is extremely tight. Businesses are hoping other firms lay off staff so they can hire them, and the high job security means many previously frustrated young house buyers are still in the market wanting their first home. That helps explain my data showing both real estate agents and mortgage advisers newly observing more rather than fewer first home buyers now active in the property market.
Another big positive for our economy beyond the low unemployment rate of 3.3% is the under-valued Kiwi dollar. This is very valuable for our exporting sector. The tourism part of it is about to get a big bump up from returning visitors even if numbers will be constrained for a while by recession offshore and a lack of flight capacity.
Independent economist Tony Alexander: “House prices have fallen 10.8% on average so some people feel poorer and are cutting their spending.” Photo / Fiona Goodall
The primary part of the export sector is benefitting from good commodity prices. The food crisis offshore may be pushing our grocery bills up here, but we are a food exporter and high prices offshore boost farm incomes.
The number of foreign students studying here is about to increase and that will be positive for inner-city retailers and hopefully even next year the social environment of Auckland’s CBD, which currently is fairly dire – and unfortunately actively discouraging some families from sending their offspring here.
In our bank accounts we householders have about $30bn more on deposit than just before the pandemic and that will act as a cushion for falling household spending.
In the home-building sector things may well have peaked. But there is a backlog of agreed work yet to be done and plenty of people who are hoping for some weakness so they can step forward to get additions and alterations done as they perceive some better availability of tradespeople.
There is also a huge backlog of infrastructure work to be done around the country, and the pressure is on businesses to boost investment to allow for the workers they want never showing up again. Labour productivity has to rise, and it probably will quite well in the next few years.
Let’s add in about 200,000 migrants and family members switching from temporary work visas to permanent residency, plus a rising chance of Labour loosening the fiscal spigots next year given the way the polls are turning against them.
Nothing here suggests our economy is about to embark on a growth surge in the near future. But there are plenty of positive factors in play which suggest businesses would be better placed planning for customer demand to hold up in most sectors rather than getting set for a return of the 2008-09 recession. Will we in fact go into a recession? I’d give it just a 20% probability.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
