NZ’s economic cycle is very much into the mature phase, according to BNZ’s Stephen Toplis, who says rising international interest rates could spell trouble for the Kiwi economy

NZ’s economic cycle is very much into the mature phase, according to BNZ’s Stephen Toplis, who says rising international interest rates could spell trouble for the Kiwi economy

BNZ’s Head of Research Stephen Toplis is issuing a stark warning about New Zealand’s economy – “cracks are developing, and it increasingly feels as if a tipping point is not far away.”

In a research note, Toplis says even if the bank’s average 2.6% GDP growth forecast over the next four years proves accurate, the operating environment for businesses and investors alike will be more difficult to navigate.

One of the biggest economic threats facing New Zealand, according to Toplis, is tightening global monetary policy conditions.

In other words, central banks around the world raising interest rates.

“As global monetary conditions become more restrictive, world growth will inexorably slow and, with it, asset prices correct. No one really knows how this process will play out. But the potential for it to ‘go wrong’ is high.”

Recently central banks from around the world have begun to emerge from a long period of loose monetary conditions.

The US Federal Reserve has raised its equivalent of the Official Cash Rate (OCR) seven times since late 2015 with another four hikes expected in the coming years.

The UK has started a tightening cycle and the Reserve Bank of Australia has indicated its next OCR move will be up.

Meanwhile, the European Central Bank has been discussing moderating its quantitative easing policies – as has Japan’s central bank.

“When you get tightening monetary conditions, it tends to slow economic growth,” Toplis says.

“New Zealand is a country which is highly leveraged to international demand and we would be adversely impacted by that.”

In addition to this, if other major central banks are tightening that will put pressure on the Reserve Bank to do so as well, he says.

“Higher rates here would slow economic growth.”

‘Abrupt changes’ mooted as a concern

In May, Bernard Hodgetts, Head of the Reserve Bank's Macro-Financial Department, said he does not see rising international interest rates as a major concern for households in New Zealand, as long as there are no “abrupt changes” in the international market.

He says there are still a lot of households with high debt to income ratios.

“Those are the sort of borrowers that could struggle if interest rates were to move up abruptly.”

When it comes to the domestic side of the economy, Toplis says the major areas that have driven economic expansion over the last few years are either coming to an end, or moderating in their intensity.

This includes population growth, which in 2016 peaked at 2.2% (1.6% of which was from net migration). Toplis is expecting that figure to fall to 1.5% as net migration declines.

He also outlines an expected decline in New Zealand’s terms of trade, lower house price inflation and lower business confidence as areas that will negatively impact economic growth.  

But it’s not all bad news, Toplis says.

“While the overall picture is one of heightened risk, in an environment where it will be harder to make a buck, one shouldn’t overlook the fact that the New Zealand economy still looks well placed by international comparison.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Echoes of what a number of commenters have been saying here for a while, but concerning that the banks are now warning of it. While many of the commenters here talk about NZ's debt, the statement above “New Zealand is a country which is highly leveraged to international demand..." appears to include our heavy reliance on exports, and the demand for these drying up during a correction. I wonder what economic strategies can be put in place to protect us from the worst of the fall outs, if at all?

When the cause of worry itself is normalization of quick-fix stimulus, I think we have to admit that we've exhausted all work arounds in achieving further economic growth. Any likelihood of sustainable economic success in the future will only come with a policy overhaul and improvements in the skill base of our country.

Yes i accept that. If a global "reset" (as some have termed it) occurs, the demand for many of our exports may well dry up, so self-sustainability may well be crucial. your comment on "economic growth" may actually be unachievable, because a reset would like be a contraction, not growth. Positioning ourselves to weather the storm was my query. I suggest that starting before the "reset" occurs would actually enhance our resilience for all times, although may limit our gains during the booms. Another question - would the 'protectionist' stances that have come out as the world realised the the free market concept was a fallacy help to protect against the worst? At first glance, supporting manufacture at home, creating jobs, the economic money-go-round, primarily to deliver an affordable product to ones own citizens first and only exporting excess capacity and product would appear to provide such a resilience. Internationally this would be argued as anti-competitive, but is it really?

I agree on your comment on resilience and weathering the storm but currently we are far from it. The government can only do so much with its handouts and fiscal easing during tough times since the most suitable form of building household resilience, savings , seem to be dead in the water. Sadly, our net household savings have been in the negative territory for 3 years straight, they weren't exactly boastful figures before either.

While discussing the global and national situation, it is important that we don't overlook the individual implications.
We have had an extended period of 10 years of pretty stable and prosperous times for many (although FHB have struggled). Under such conditions, it is easy to assume a same-old, same-old situation continuing.
With warnings now being a little more widespread (although RBNZ seem happy), there is need to start at least thinking about the implications personally.
The recently purchased FHB with the $500,000 mortgage may need to put off that overseas holiday or newish car that they have denied themselves a little longer and start paying down debt due to the likelihood of rising mortgage rates.
Those with investments such as highly leveraged rental properties or those with exposure to a high degree to equities (especially off-shore equities) may want to review their situation as interest rates rise and equities (both housing and share market) could at best remain flat.

How about 3-4 times the population, consuming more of what we produce from the land and restarting industries which were sent offshore due to such a small market. Exports switched to more finished goods, greater tourism through improved improved transport systems like passenger rail (which we used to have) and completion of the road linking Haast to Milford Sound (abandoned when war arose) and on to Queenstown. Of course the semantics of how that growth is achieved and planning to provide services needs thought. Our colonial major cities, as it turns out, are built in unstable locations, just organically grown around ports and transport waterways. Step aside from enlarging them, plan and build new, efficient centres to become the new capitals and we will easily accommodate many more without sprawl. Cue Tui slogan........

"Cue Tui slogan........" Cynic! Oh ye of little faith in our pollies!

Peter Thiel's land is a great location for a new Hong Kong. It's got the beautiful mountains and unlimited homeopathic cow water.

This overlooks the implication of a "reset" .... its going to tank demand (ie affordability) .. the demand is there but its only affordable through debt ie Its the climbing debt that has been supplying and holding demand up as a temporary (several decades) fix.

The debt masks the true cost of production - so take away the debt and suddenly the energy quotient of our consumption and supply chains is revealed.
Adding more population has been a cheats round growing GDP (through more debt based demand). It actually makes increasing resources per capita harder.


-Producing more oil would be really useful - displacing imports and the large money outflows needed to pay for them.
-Increasing agricultural production through the creation of bigger irrigation water harvesting, storage and distribution schemes. NZ is more than just dairy, and irrigated land is massively more productive.
-Reducing business compliance costs to make the business environment more internationally competitive and able to weather a downturn.
-Massively reducing regulatory costs (health and safety, consenting+fees) to increase activity in the construction sector.
-Reducing tax burden to increase underlying growth and so boost government revenue (Laffer curves and all that).

Increasing oil, due to an already existing reliance on fossil fuels, and reducing exports makes sense, but all the others suggest a presumption that international demand would continue. In a reset, that demand may well dry up. what then? Do we create WMP and butter mountains?

Or do we work a deal with say the Japanese and say that because they are efficient at producing motor vehicles and we are efficient at diary product we have some form of trade deal that works for both economies? What of other industries, and has globalisation prevented us from being able to develop efficient industries with an export potential?

It must be difficult for Labour to understand these basics when their votes (greenies, public sector employees, beneficiaries, working for families takers) depend on them not understanding it. Instead they'll continue with the bloat until our economy can no longer stay afloat. Taxes cuts are a short term policy but I have no doubt they'll ruin the nation long term as well by continuing to drive productive people overseas and help unproductive people to have huge families.
To be clear I'm not saying National are any good either since their ideas are limited to selling properties to each other and China.

Politicising this helps no-one, and I'm kind of dumbfounded the commenter would roll the dice with laffer curves, given the refutations to that model.

Find it hard to see these suggestions as anything new. We've spent three decades implementing policy like that, but the suggestion here is, to me, 'more of the same and we'll be ok'... I would have thought the assumption laffer curves are even 50% correct to be one of the current issues we have.

Not just labour, i doubt any of the political parties understand these basics as none of their policies came even close. I suggest that only WP might have a clue, but am not sure to what degree. All the other pollies are too wedded to "conventional political wisdom".

Winnie fancies dumb ideas like "GST off vegetables" which would result in prices staying the same at the supermarket duopoly and the GST cut becoming profit.

The Uk don't have GST(VAT) on food period they must be pretty dumb ? food prices are way too expensive in NZ compared to Europe .

What planet are you on, Foyle?

Just asking because we could use another one.This one's being depleted at exponentially-increasing rates.

And just a correction - you don't 'produce' oil. You extract it. It's mining - a one-off.

This is hilarious. Is this the same BNZ that let Tony Alexander loose in the property press? The same Tony Alexander who was trying ensnare the young in his housing Ponzi as recently as April 2018. Somewhat duplicitas given his preaching on the economy!

Are you shooting the messenger, or disparaging the message? If it is the second why?


Hi Murray.

The message in the article is the sensible word for caution. I have an issue however with the way the banks generally communicate with the youth of this country. Tony Alexander who represents the very same bank is selling a very different message in the link I provided. In my view he is nothing but a mortgage salesman (who probably has a lot of his own skin in the game) and who sells 'fear of missing out' to the young who don't have the world experience yet and run the risk of making a big mistake when at this time in the cycle his advice is completely the wrong advice. Also how can an individual bank have two senior economists representing them but espousing completely different messages?
I just have serious concerns about the practices of our Australian overlords and their duplicitous nature! Notice how its all gone quiet on the confidentiality agreement with the Reserve Bank about sharp practices and simultaneously the media have for some reason just switched off to questioning whether there has been malpractice or not. None of it smells right.

Hi Nic
I have a lot of respect for Tony Alexander.
Over quite a long period that I owned leveraged rental properties I took special interest in his weekly newsletter comments "If I was a borrower, what would I do?"
I found his comment often in conflict to what be in BNZ's best interest, and on occasions I followed his advice by breaking term rates which saved me considerable amounts in interest.
As to the wider economic issues, I found his position was reasoned and most often proved correct. His predictions as to the future of housing proved more accurate than other commentators who I also followed.

So lets forget Tony and start ripping into Steve Hansen. I am sure that you will find as much or more reason for criticism. :) :)

printer8. I have no criticism of Steve Hansen his reputation and achievements are beyond reproach.

I partly agree with your comments. My challenge is to the grey matter between your ears and consider the message, not its source. I suggest he does more than counsel caution. My understanding the message is that as a country we need to be looking at strategic plans that position us to weather the apparently inevitable reset. The discussion i tried to stimulate was along the lines of what these plans would look like.

I agree that the Aussie banking overlords must be considered and as i have often stated in the past, some real robust legislation may be required to ensure that they do not undermine or torpedo any efforts to firm up our resilience.

Good comment murray86. In answer I don't know and in many instances further regulation may actually speed up the re-set. I do see a place for DTI's on mortgages and the weight of interest only lending has also created massive distortions but is no different to happened elsewhere prior to the GFC. Sadly I don't have the answers but what is evident is that New Zealand has a culture of gambling, whether that be on the pokies, the horses, houses or dareisay Bitcoin and those tendencies lead to herd mentality that puts our system at risk if left unchecked and unregulated. Sadly we're a 'quick buck' culture rather than patient long term thinkers and strategists.

Agree that I don't know what the plans would look like, but do think the discussion is valuable because it prompts discussion and thinking, and just maybe those ideas will peculate through to someone who can make a difference. I do think regulation is part of the answer, and the risk of hastening the reset may be one we have to live with. I have argued before that the 'free market' doesn't work, and that regulation is required to establish limits, but not to the degree of the total control that was attempted before the 1970s. But I suspect that there are parts of that model that we need to review as being applicable now?

What's happening is that there's a massive fall off in banking business around meth contaminated houses now that test limits were demonstrated to be absurd. Now it's only the relatively number of small meth labs that Tony Alexander is recommending people buy. It looks like our economy is going to faulter because of this.

The solution is to increase meth production to provide more construction work and it would boost our exports at the same time.

I've heard there's going to be a big scare re marijuana-contaminated houses..........


And all the Meth Plants in the back yard.

A recent presentation by Ashley Church on the future outlook of property investment

We do need to ensure that as many jobs as possible stay in the country. Otherwise the rich elite will have few people to sell their overseas-produced goods to. Globalisation is good for you - that's the Tui billboard.
How about a tax on every job that is outsourced?


Difficult as we already have major efficiency issues in NZ, albeit I think that the wool is often pulled over the eyes of NZ consumers.

You have to question everything when you can buy European bacon cheaper in NZ than home grown bacon. When legs of NZ lamb arrive in the shops in the UK for less than in Pac. N, Save. When a country that is full of cows has milk at $3.5 for 2 litres when in UK it'd be a £1 (NZ $1.93) for 4 pints (2.27 L). When Aussie wine is cheaper that NZ wine. When you have to re-mortgage to buy cheese. When Avocadoes are $3.5. When petrol prices get lower the further you go from an NZ port? When 2.5% real estate fees are the norm and you still have to pay for your own advertising? Average house prices that are over 50% higher than the UK

Lots of things that don't make any sense but hey, if you're going to get ripped off, it's a beautiful place to get ripped off in!

Agree Nic, but most of that is the private companies, not the Government. I am not sure what the Government could effectively do about it other than price controls?

That's never the answer but if the credit tap does tighten (as it appears to be) and household spending is reduced then there are a lot of businesses that may have to tighten the cloth to attract sales. After all, how many Spa dealerships do you need per region? Those that can reduce price offerings (because they aren't overleveraged themselves) will do so and survive. Those that can't... we'll see. As for the supermarket cartels that's a different story and one that has been allowed to go on so long that people seem to just accept it.

What we need is something called "competition"......what we need is for Dairying and Super-Super Markets to get real.

If I was any younger I would import both Lydll and Aldi Franchises, and give em a run for their money.

Did ya know you can freeze the water we call milk here....

Did ya know that decent Cheese matures with age...

Did ya know ...ours are tasteless and the Tastes of most people in NZ have never matured.

Did ya know Bacon can travel reverse......If only the Pigs in Clover in Power would let it....

I will not go on about Fruit and Veg.....

New Zealand growers and need to take a leaf out of other Countries book....and encourage a different diet....reasonably priced, ......instead of them driving us to Bananas.....& yearning for Chinese Gooseberries.

My Fruit and Veggie supplier grows his own stock................but they are one man bands...

I would suggest Lydlls could take on the whole of NZ, buy...yes BUY...itself....a place in the the odds we overpay here in NZ.

I used to own a Supermarket, made a killing and got I know what I mean...I used to deliver to Farmers....and keep em going during the lean months......with Accounts.

(They have been leaning on us all....ever since.)...poor bar-stewards.

This comment wont go down well , but the chickens were always going to come home to roost .

The idea that we could sort out a debt problem with more debt was foolhardy , and that was just it , Quantitative Easing was just stupid , because it was either going to have unintended consequences or end very badly at some future date , or both .

I seem to recall Noriel Rubini calling it "kicking the can down the road " .

Now we see the gradual unwinding by the Fed of all that money , and of course its going to get more expensive to borrow , and we are behind the curve , and many are still throwing money around like drunken sailors .

And paying the money back will be even harder , especially when you have followed the herd and used cheap credit to buy over-priced assets

And lets not forget , everyone relaxed monetary policy , or in the NZ case , we lowered the OCR and expanded Government spending to keep the GFC at bay .

Now we have a new Government who pays lip service to fiscal discipline , wants to tax us to death , and is facing a slowing economy .

Good luck with that juggling act

Could be an interesting few years ahead


Not a lot there I don't agree with.

Only thing I'd say is that after 10 years of post GFC asset price inflation, it wouldn't matter what government was at the helm today. They'd all be facing the same issues of a disgruntled public sector (that has been a bit neglected to be fair) and a massive household debt problem.

I'll add all we have to blame is ourselves. Each person has to look after themselves financially - not the government , not the banks - each individual themselves has to take responsibility.


But should the government bail out policy holders who went for cheap premiums and when there was an earthquake found that there wasn't enough cover (AMI).

There are things outside people's control, but what you can control you are responsible for.


AMI’s reinsurance levels aside, Balmforth has come under some fire for receiving high salaries during a time his company was being rescued by taxpayers.In 2011 he was paid $992,069, while in 2012 he was paid $875,741, according to a Southern Response annual report.Yet before resigning in April 2012, and after AMI changed hands, believes Balmforth may also have received an additional $2.1m.The financial results of AMI Insurance Limited - a company incorporated in December 2011 as AMI’s affairs were re-shuffled - show an unnamed employee was paid $2.1m.
Welcome to New Zealand where the 1%ers look after each other. No one loses out. Sometimes we even give them knighthoods after they have finished @#$%^& % us.


That's not a 1%er. Try 0.1%er

Would the average person looking for insurance have been able to identify a weakness in the company's ability to payout in the event of a loss? I think not, it is about on the same level as predicting the earthquake in the first place. If the earthquake had not happened the company probably would not have gone to the wall. the real problem here is the fundamental rort that insurance companies are and have become in the name of profits.

You are still not presenting an argument for the government bailout - only that people (including the so called experts) don't know what they are doing. You pays your money and you takes your chance.

I don't think there should be a Government bailout of the company. I think the Government has a responsibility to it's constituents. A company is not one of those. I would suggest that the Government could have stepped in to ensure that those with policies got what they were insured for. I also think the Government should have an in depth review that investigated why the company ran out of funds to fulfil its contractual obligations to its clients. I suspect that would be an expose worth reading, bot on the company and on insurance in general.


Where am I saying no to regulation - what I am saying if you buy on price the you get what you pay for.If people make a poor financial decision they have to suck it up and not expect others to pay for their mistake.


Only in hindsight is it a poor decision. I'm sure no one sets out to make a poor decision - but sh*t happens.

PS - you put to much faith in rating agency's

Stolen but relevant.
AMI was the second biggest residential insurer in New Zealand pre earthquake, and was New Zealand owned. It had 485,000 policy holders with 1.2 million policies including 51,000 in Christchurch. AMI had more than 30 per cent market share of the fire and general insurance market in Canterbury. Because of AMI’s much higher market share in Christchurch it was exposed to much larger losses than had the event occurred in Wellington. AMI was mutual i.e. owned by its policy holders with no shareholders or parent company,
The question arises: how is it that AMI was able to run a level of reinsurance that was well below the level that most New Zealand insurance companies would deem prudent and good business practice?


Agreed furthermore QE and the Central Bank interest rate repression was essential a con to convince people to borrow and consume more the critical problem now is over-inflated asset prices financed with very high debt levels. Any attempt to normalise interest rates without a major meltdown will prove near impossible as will trying to repay the debt. You can only kick the can so far.

That was well worth the read Andrewj. appreciated

'He also outlines an expected decline in New Zealand’s terms of trade, lower house price inflation and lower business confidence as areas that will negatively impact economic growth.'

Isn't it just stupid that our economy is so wedded to higher house price inflation?
And what a short term view from an economist.

Because ultimately the economy will be more robust and sustainable with lower house price inflation.

When a bank says so, I think there is some other motives..
May be that BNZ is soo leveraged (capital /reserve requirements or whatever) that they can't win enough share of loans... ??
A friend of mine bought his first home ; he had his savings in BNZ for 10yrs; but they denied him loan. Another bank ( ANZ i guess) was happy to give them loan ..

Headwinds even being called out by the banking sector. Specuvestors will insulate themselves with five year fixed loans but probably stick with interest only but only as longs as the banksters offer that option.

As the economy slows jobs will be lost, tenants will not be able to pay their rent and will start to squat in houses till they are evicted. This is not a quick process and I expect some specuvestors will try to evict people themselves and awake in hospital. Will the eviction process get any faster if the amount of squatting increases 10x or 20x...? Perhaps we should bring in squatters rights for all the empty houses like they have in the UK. It would be a great way of getting some free state houses for the lefty government, and probably force a more than a few onto the market.

When you have to remove the plaster from the festering wound do you pull it slowly to prolong the agony, or do you just go for quick rip, short term pain option. Get on with it and just rip it off!!!!!!

Your access to our unique content is free - always has been. But ad revenues are under pressure so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.