NZIER warns Australian slowdown biggest risk to NZ economic recovery; Also says recession possible if overheating housing market falls away

NZIER warns Australian slowdown biggest risk to NZ economic recovery; Also says recession possible if overheating housing market falls away

By Alex Tarrant

The biggest risk to New Zealand's economic recovery is the slowing Australian economy, meaning businesses will remain cautious and the Official Cash Rate will remain on hold until at least 2014, the New Zealand Institute of Economic Research says.

NZIER also warned about signs of an overheating housing market, particularly in Auckland. If deteriorating global conditions led to a fall in the housing market, that could turn the economy back into recession, NZIER said.

Releasing its latest Quarterly Predictions for November 2012, NZIER principal economist Shamubeel Eaqub said the New Zealand economy was recovering, although the pace was slow and would remain so for another 2-3 years.

"During this slow recovery, jobs and income growth will be modest, businesses will invest only cautiously and interest rates will stay low at least until 2014. Global growth is weak and volatile, as the world is still dealing with the GFC and sovereign debt crises," Eaqub said.

The biggest risk to the outlook was from a slowing Australian economy.

"Australia accounts for a fifth of our exports, which have fallen by almost 10% in the last six months. This is a particular risk for the New Zealand economy and manufacturing exporters in particular," Eaqub said.

The recent recession had been unusual.

"The recovery has been the slowest in 80 years. Partial indicators suggest some similarity with the 1930s Great Depression. The standard of living will not get back to the pre-recession level until 2014 or 2015," Eaqub said.

"Households and businesses are gradually repaying debt. This is reducing future risks for the economy, as debt magnifies the impact of shocks on economic activity and jobs. However, there are signs of overheating house prices, particularly in Auckland," he said.

"If the housing market falls, perhaps because of deteriorating global growth, it could tailspin New Zealand back into recession."

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.

32 Comments

Zero insight, zero interest very superficial article - i hope no one paid them for this.
Probably not - thats why Eaqub still cant afford his own house!
 

Yet another shooting the messenger.  I have read his pieces, he actually seems to have a greater appreciation of,
1) overall issues, he seems to be stepping back from the coal face and seeing the external forces.
2) a better outlook on the real world than most.
3) No political axe to grind, or pre-deposition.
In terms of not owning his own house, well thats "putting his money where his mouth is"  ie
1) If  he thinks the market is greatly over-valued then a significant mortgage is plain dumb.
2) If  he expects deflation then cash is king.
3) If  he expects a significant downturn then we'll see firesales.
regards
 
 
 

I wouldn't be so quick to dismiss Eaqub and the NZIER, they have got more calls right than most these past five years. Pessamistic realists, you might say, but you can't argue against their track record.

Agree....
regards

Yep KD they have indeed....Although Equab over the years has transmitted mixed messages on solutions, as one poster here was just pointing out a slowdown in the overheated housing market may impact negatively in recessive terms.
Perhaps what he ...is saying there, is that the true bottom of recession for us has not occurred due to factors that may have more percieve economic value than actual.
Bottom , is the essential part of any true new beginings , just ask Greece, they are still finding new depths to plumb. 

in one line he says the housing market is overheated and then he says if house prices fall there could be a recession.
so where is the solution ?

There is no solution. That's what happens when you rig an economy to live and die on credit/debt growth.

The best thing overall would be for house prices to remain stagnant or increase only slightly for 10 years plus, and let wage increases improve affordability
Unfortunately I can't see this happening
SO we are either going to bear the ongoing consequences of stupidly high house prices, or there will be a crash with big collateral damage
All comes back to very poor governance and planning / immigration / foreign investment policy

I'll take the boom and bust - much more entertaining.
And surely thats the pure capitalist cycle at work.
Creative destruction.

NZ is on track to becoming the next Spain...

http://www.macrobusiness.com.au/2012/11/nzs-economic-omen/

I hope you like your boom and bust to be long and drawn out because your soon going to spending an awfully long time in recession with massive unemployment. And if you think you can all escape it by just popping over the ditch... sorry but Australia isn't far behind you.

Clearly there are differences.
 
Granted they may have better tapas - but our wine is well above Spanish efforts.  For NZ$12 you can get extremely good whites but I wouldn't go anywhere near a $12 spanish white wine.  But maybe a vinegar.

True, true.

But I always fancied learning to play the castanets, so bring it on!

A rhythm instrument , ...much like menackers.

I wish I had even an ounce of musical talent but sadly not, so there we must part company.

Appreciation is a talent in itself there Ralphie....so don't you be getting down on yourself about  no rattling idiophone....castanets indeed....! like being waterboarded by a swarm of crickets.

Okayyyyyyyyyyyyy.......
What happens when your property portfolio drops in value 25%??? Still entertained?
Look to the USA, Japan and Europe for the prolonged economic pain that follows a housing bust - its devastating: not just for highly leveraged home owners, but for most people 
NZ's housing / planning / taxation / immigration / foreign nvestment policy has left the country in a very difficult position, and I like a few others have been whingeing about this for at least 3-4 years on this site. Sadly, no action because this govt are a bunch of useless short-termist twats. The one benefit is Auckland won't grow anywhere near what the planners expect because its economy will be up shit's creek, hindered by high housing costs, terrible traffic, and mediocre economic growth. Similarly if house prices bust it will be up shit's creek even more so. The necessary balanced middle ground is unlikely 
I'd listen to the independent voices of the NZIER and Leith at Macrobusiness any day over biased Olly and the bank economists and the govt morons 

I'm hearing you brother. With massive debt levels any economic growth is massively constrained. If the economy picks up then rates rise, but then the heavily indebted fall over, forcing the economy down again and most likely result in the govt encouraging even more debt and speculation based on lower rates. The onyl way out of the bind is a bust - but the chance of us getting out the other side  of the bust is getting less and less by the day. It may already be too late, in which case we should just enjoy the heady days of debt while we still can.

The article doesnt say anything useful or new.
The author is supposed to be a finance expert - economics degrees etc - but as property in his city booms off record low interest rates - he sits renting a little apartment.
Hopeless!

LOL, there you go you dont understand, no actually I think its FEAR.
In his position, today ie 30ish that is exactly what I would do....
regards

This is my position. The bank would gladly lend me as much as I needed to buy a good home in a good neighbourhood but I refuse to take on debt in an overinflated market. Better to wait it out until some sanity returns.
 
I also have the ability to move somewhere cheaper at short notice and no capital penalty should the need arise.
 
Worse case is high prices forever but I am saving plenty while renting and at this rate will be able to afford to buy something for cash outside of Auckland and have enough passive income to retire in 10 years.

We are in the same boat. I'm quickly coming to realise that if Auckland doesn't sort its s**t out with regards to the property market, I won't be living or doing business here.

The only thing booming in the Wellington inner city apartment market are insurance premiums, which in some cases are up hundreds of percent this year due to Christchurch. http://www.listener.co.nz/current-affairs/new-zealands-financial-aftersh... Equab is wise to stay renting.
 

and making a fortune on shares Bernard, sorry SK, sorry Bernard.

Right - wealthy sharemarket investors always live in FEAR in their little shoebox apartments.

Actually no the FEAR is you.....tulip anyone?
From here it looks like you are spewing because someone comes out with something that flies in the face of your beliefs. 
So the only Q is, is it FEAR of losing your ponzi wealth or that you have so much debt your next "small apartment" will actually be a cardboard box under a bridge...
 
regards
 

Flies in the face of current market conditions - missed opportunities - so be it.
Hope you wouldnt revel in the schadenfreude of your cardboard box wet dream - that would be pathetic.
 

Opportunities always carry risk...If you cannot, or refuse to assess and quantify the risk then you are gambling.
regards
 

No they don't because their investments are diversified. They also don't have any debt. As Eaqub says above: 'Debt magnifies the impact of shocks on economic activity and jobs.'

Another excellent, balanced and realistic piece from the best economists in the land

Bulls make money, bears make money, pigs get slaughtered.

I don't think he is living in fear. He minimises his living costs, maximises money available for investment and has no worries such as maintenance and tenants.  When you are paying interest to the bank it just means the bank is your landlord. A lot of people in Auckland are paying a lot of rent to their banks. Some are finding it very hard but you have to keep up with the Jones's. Just heard of someone in Remuera who has lost his job and pays rent to the bank on $1.9 million. I can guarantee that house is going on the market.

The shortcomings of the Financial Hub notion, which incidentally Key stills holds dear to are slowly but surely being exposed as fanciful theory by a man who is after all little more than a Forex Trader ( speculator) .Knowing only the speculative creedo that if there is tons of Foreign cash sloshing about in the economy there is opportunity abound to clip the ticket and therefore trickle the pickings back through the economy.
 The widening GDP balance begining to show focus on the economy has been  somewhat misguided....directionaly impaired.
Get the assets sold....he understands that...straight line, short little span of attention thinking.
The collusion between the Administration and the Banking fraternity in N.Z. has probably been one long protracted confidence game, generating hysterical buying by all those in the property industry both amatuer and professional......
 Outwardly..look it's all go here , wer'e doing just fine safe as....as ...well as houses.
But now the numbers just won't support  the illusion, even the odd Banky Boy breaking ranks.
Expect it to be a warm summer, spring was a no show. a little time to unwind.