This is beginning to be one of those years where at the start you try to imagine all the things that might go wrong - and then watch as, one by one, all those things duly DO go so very wrong.
Less than two months ago I opined as a kind of scene-setter for the year. And in that piece I raised the prospect of either a 'hot' or 'cold' war involving Russia. I talked about rising inflation. And I mentioned Omicron.
Perhaps one thing I didn't do strongly enough is link the way those things could all act together to form an almighty inflation cocktail.
So, okay. Omicron. I guess the question was always going to be what the approach would be to it in China. Well, turns out the approach is the same as it's been with any old Covid - lock up your citizens and snuff it out. But Omicron? We didn't even try that here. And we were pretty keen on the 'snuff it out' approach.
I will stick my neck out right now and say that this time this is not going to work for China - and that's bad news for all of us. You can't just shut huge (26 million population) cities like Shanghai without having a massive impact on the global economy.
Now, yes, China did of course close down ports and factories etc in the original 2020 outbreak. But remember, the rest of us were all in the same boat. Closed for business. So, Chinese factories and ports were not operating at a time when there was little demand pressure from the global markets.
Not now though. There's plenty of demand. Too much. Which is still struggling to be satisfied by groaning supply chains.
And now we have parts of China shutting down again?
And what is the endgame for China? Do they think they can hold Covid back in perpetuity?
For me these latest moves suggest an underpinning anxiety/realisation within China that the Chinese population is not properly covered against the worst of Covid. Simply put, their vaccine was not good enough, so, they keep having to wrap their people in cotton wool, maybe while they develop a better vaccine.
Look, I hope I'm wrong about that. But it seems to me there's no future in forever having to lock down in an attempt to keep holding back the virus.
But this is not just China's problem. It is our problem.
All this can lead to is more and more disruptions to supply chains - at a time when, let's face it, things are stressed enough. A free run for Mr Inflation.
Given these developments in China, I really do not think things are looking too flash for the rest of the year. And let's face it, they weren't looking great before.
Remember, this is coming on top of the huge disruptions from Putin's War.
I was concerned earlier this year whether we might get a 'hot' or 'cold' war. Well, turns out we've now actually got BOTH running in tandem, with no clear sign of when, or if, either will end.
So, while economists might still be hopefully suggesting that global inflationary pressures are about to peak, I'm really not so sure.
But anyway, that's how the world is. What about our little part of it down here in the Pacific?
Well, not great either really.
Inflation's up. Wage claims are up. Omicron is having a severe dampener on activity levels and confidence. The housing market has lost its mojo.
On inflation, I would not now be surprised to see it hit double digits by the end of this year, particularly if disruptions in China go on - as I fear they will.
The Reserve Bank is set to hike interest rates again next week (April 13) as it tries to get itself a little less behind the inflation eight-ball.
The only question for the central bank next week is whether it raises the Official Cash Rate just to 1.25% (from 1.0% currently), or whether it has a double-dip and hikes it to 1.50%. My money is on the latter, because I think the 'market' has been well-enough conditioned to expect that. And the RBNZ does have to send a signal that it is on the case and acting with urgency.
That brings us inevitably on to mortgage rates. These worry me.
The rates have already moved up a long way - and yet the RBNZ has barely got started yet with OCR hikes.
What about interest mortgage debt servicing costs? RBNZ averages for a year ago - the month of April 2021 - suggest one could have secured a one-year fixed 'special' mortgage rate of 2.3%.
As of this month (April 2022) we're now looking at 4% to 4.2% for a 'special' for the same term.
The significance of that of course is that someone who got a mortgage at 2.3% a year ago might now be looking to re-fix at, say 4% (if they are quick!)
The average-sized mortgage taken out in April 2021, according to RBNZ figures, was about $335,000.
So, the interest.co.nz calculator tells us that over a 30-year term, someone with a $335,000 mortgage at 2.3% would currently be paying $1289 a month.
If we switch to paying 4%, then the payments go up to $1599 a month - so an extra $310 a month.
Now, people should be able to find that, given that the payments weren't huge in the first place. But, my goodness, they will notice it. Particularly with the general cost of living shooting up, with inflation likely to rise above 7% very soon.
On affordability and serviceability, the last time I looked (some time ago when interest rates were very low indeed) banks were testing mortgage applicants for serviceability at about 6% to 7%. Supposing that everybody has been giving correct information to their banks therefore (hmmm), current mortgage levels should be okay for people.
But I would be concerned if we saw average mortgage rates starting to get above 6% - and we are not too far away from such a situation now.
All of which brings us back to the likelihood of reduced spending and what that might do.
The big silver lining in New Zealand is the extremely low unemployment rate (3.2% as of the December 2021 quarter). Clearly, as long as people still have regular money coming in they can meet the mortgage payments and buy food.
For me, the biggest thing to watch in this country during the rest of 2022 is what happens to that unemployment rate.
The labour market is still incredibly hot at the moment. But, with winter coming on, Omicron very much around, supply chain problems ongoing, oil prices likely to stay up, mortgage rates likely to keep going up - it seems inevitable spending will reduce further. And that could tip over some businesses.
It would be very surprising to me if we can maintain such a buoyant labour market for the rest of 2022. But we will have to wait and see.
If significant numbers of people were to start losing jobs that would be when the trouble really starts. Because then we could see forced house sales and the like.
So, here's hoping we do all keep our jobs, because that's our best bet of coming through such a difficult time in reasonable shape. Oh, and hope like hell this crazy world doesn't throw yet another curve ball. Enough already.
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