BNZ’s chief economist Tony Alexander says New Zealanders are too used to high growth and points out a myriad of potential economic issues he calls 'blind spots'

Tony Alexander

BNZ chief economist Tony Alexander says Kiwis have become too complacent about having a strong economy and is warning of multiple “blind spots” that could disrupt economic growth.

Alexander says no one is expecting New Zealand’s economy to struggle much in the coming years, bar a nuclear or a large-scale trade war.

“Factors supportive of New Zealand growth are numerous and the talk is of growth, growth, growth.”

Despite recent Gross Domestic Product (GDP) figures showing economic growth last year was slower than expected, at 2.9% it was still higher than the OECD average of 2.6%.

The Reserve Bank expects growth to average 3.2% over the next four years.

Alexander says even Finance Minister Grant Robertson appears complacent and is “rashly contemplating spending anticipated extra surpluses.”

Despite the talk of economic strength to not end, Alexander has identified a number of blind spots – things which a person probably does not realise can go wrong – lurking beneath the surface.     

Pricing power, whereby local New Zealand companies are at the mercy of overseas players when it comes to setting prices, is a major concern, Alexander says.

This is especially prevalent for farmers.

“Their incomes can go up and down massively and when this happens, especially in dairying, the whole economy can feel the effects.”

As technology develops, he says this phenomenon is extending to other parts of the market too.

“These days when we consumers don’t like the price of something, see it go up, or just feel like seeing if there is something cheaper, we go online.”

He warns businesses increasing prices, “don’t expect the same complacent response as 10 years ago.”

Employment and corruption

Alexander also picks up on a theme many economists have been talking about recently, New Zealand’s tight labour market.

Unemployment has been gradually falling since 2010, with the most recent data showing the jobless figure at 4.5%, the lowest level in nine years.

That number is expected to drop further, potentially below 4%.

Alexander says although businesses are lobbying the Government to loosen restrictions on immigration to bring in more workers, unless it’s a special case, “forget it.”

“A centre-left Government is not going to undermine the bargaining power of unions and average Kiwi workers by facilitating more competition for new and their existing jobs.”

This will lead to a tight labour market that may produce higher wages but will also increase labour costs as businesses compete for the best talent.

“Businesses need to seriously question their ability to maintain current output levels as staff availability worsens.”

He suggests the best response in this new paradigm may be to cut output and focus on the highest yielding customers and products.

Alexander also puts honesty on his list of potential blind side risks to the economy.

He says since New Zealand has quite a trusting culture, its status as the world’s least corrupt country could be at risk.

“But since altering immigration rules in the late-1980s to allow in a lot more people from non-traditional sources, and especially in recent years, we have seen an influx of people from countries where corruption is rife.”

In these countries, he says, there is often little sympathy for someone who is ripped off and in many cases, the victim is considered foolish for letting themselves be tricked.

He says some immigrants have brought these practices to New Zealand and the Government has yet to catch up with the need for more inspections of work premises on “businesses employing people from countries with high corruption problems.”

Alexander says businesses need to keep an eye on this.

“Risk of loss of reputation from engaging with businesses engaging in corrupt practices has risen. Greater questioning needs to be undertaken of why perhaps a quoted price looks so good.”

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?

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Blind Spots for New Zealanders. My pick would be the fond belief that you can grow rich by not owning your assets and giving up the control of ownership. And the illusion that borrow and wait works.


That and fundamentals of investing don't apply to us - we're special...


Very subtle...

Ha. The "we're special" syndrome. The following perspective is about Japan during its epic bubble.

Investors and pundits simply had too much faith in the “new” system, partially because it had excelled via fiscal and monetary stimulus, although coupled with egregious speculation, for so long that they thought it normal and acceptable. The Japanese were so proud of their new status as a rising world power that they forget about the risks of high equity and property valuations, industrial overcapacity and excessive private sector leverage, including a recent surge in personal mortgage exposure in what were then called “two-generation loans.”

The Lesson: fortunately, Japanese investors and policymakers have learned the lesson that normal levels of confidence are usually fine, but global investors should always be wary of excessive market confidence when huge deviations from norms are considered acceptable just because they have lasted for a few years.

"Borrow and hope" was the catchcry in the past because the economy was more volatile and could collapse unexpectedly through price shocks. Sudden economic collapse doesn't seem to happen now, the economy has more oversight and is better managed yes even under a socialist govt. TA qualified his rosy growth forecasts for effects of trade war and nuclear war, but honestly day to day life takes precedence over those unlikely outcomes. If you want to live your life around the possibility of nuclear war, then do that.

Australian bank economist talks about honesty.?

Low wages as an adequate strategy for economic growth...?

Underfunding of public sector agencies as a KPI....?

This guy has as much credibility as a carpet salesman.

Just out of interest Tony Alexander while working for a bank is independant in what he writes to the point the bank has at times told him off. I have followed his columns for more than a decade and whether we agree or not about his column I can assure you he is always the closet to the mark than any other economist. I'm not a BNZ customer but look forward to and enjoy what he has to say. If look back over all that time if I had acted on his column I would certainly be considerably weathier.


Eh!? On the biggest economic issue we face, the current real estate and credit bubble, he is employed by one of the principal lenders into that market. The fortunes of that lender are closely tied to the performance of that market. The idea he would be free to take a position that was contrary to the interests of the lender in that market is laughable. So I would say he is hopelessly compromised in terms of what he can on that issue.

Eh!? On the biggest economic issue we face, the current real estate and credit bubble, he is employed by one of the principal lenders into that market. The fortunes of that lender are closely tied to the performance of that market. The idea he would be free to take a position that was contrary to the interests of the lender in that market is laughable. So I would say he is hopelessly compromised in terms of what he can on that issue.

True. On the flip side, bank economists are usually public facing, which carries a whole load of emotional gratification -- reverence and power.

Also, his smashed-avocado-warrior rant against young people coupled with a suggestion to buy meth houses did undermine his reputation slightly for a while there.

So bobster you obvs don't think that the sharemarket is overpriced and overbought. It's ok that some stocks rose hundreds of percent because you can't live in a share.

I agree it’s all of the above, but at least shares nearly all pay a positive yield and their purchase does not involve incurring debt at varying levels of leverage. At current yields for property the return on equity absent capital gains is close to zero. Factor in a risk free rate of return and the real return on property is zero or less than zero. Return on a property investement at current prices and yields is entirely dependent on capital gains. Good luck with that...

Trouble is, when you say property I think you mean 3 or 4 bed house on full site in the suburbs mate. There are properties other than commercial that pay decent inv returns

No, I am talking about residential property generally. Even if some property reflects a return on equity in excess of a risk free rate that simply reflect the additional risk of that particular type of property. It’s not “free money”. For eg, the yield on apartments might be higher, ditto for houses in the middle of nowhere, but to me that simply reflects the additional risk of that asset. Generally investors in residential property of all types in all locations are grossly underpricing risk.

Surely timeframe comes into the equation when assessing return. Property is inflation proof so over time the cashflow gets better and better and yields increase relative to original cost and therefore outperforms the risk free ror ;) come on bobster admit defeat on this

Out of interest, have you looked at Shillers research on house prices in the US - inflation adjusted? Timing is key, and housing isn't always a good investment.

And did you hear about the 100 year old villa in freemans bay with views to rangi that was bought brand new for 400 pounds is now worth 2.6m and still owned by same family. It is illogical the research you quote leaves inflation out of the equation. Also the shiller research ends in 2014 the middle of the us recession. This chart needs to be updated or it is not relevant

So ignore what is inconvenient . It is an index showing changes over time relative to a fixed point.

Do you know what might have happened if you invested in a well diversified portfolio of shares and bonds 100 years ago?

From where we are now, with yields at 3% or less for central urban residential, interest rates at historic lows and prices at 9x income, the only money you will make in residential in real terms is if rates go materially lower or wages go higher. For me, neither of those things look the most likely outcomes. You will be lucky to make any capital gains out of general inflation from where we are now for the foreseeable. What is more likely is that prices will sooner or later will revert to the long term average ratios, in which case many people will lose much of what they have gained in the last few years. From where we are now, residential property is not “inflation proof”, it’s an absolute dog. There is little upside, lots of downside and you don’t even get a yield risk premium to compensate you for the risks. It’s a dog....

.......and bingo was his name....

Ok use central urban residential as an example, what has happened to rents in the last 20 years? Ignore property capital values which act independently to rental cashflow and yield. From memory you could then get around 5 percent gross yield on a house. And rents have doubled if not tripled since 1998 so that's a healthy 10 to 15 percent gross yield on the same property and probably more. At that time sections were generally larger and also now there is unitary plan so your garden has been replaced with 3 apartments creating a revenue stream that supports your 4 children going to private schools, annual holidays in exotic locations and new car every two years so you don't have to work fulltime unless you want to. Now I know where I would invest. Apologies to those currently struggling with rents who are aiming to get on the property ladder I realise this discussion has genuine impact on you financially but don't ever give up your search.

Truly unbelievable.........

Those who didn't build 3 apartments still have the land they can sell. I suppose you say that situation won't happen again??


It is clear from your posts,that you have little knowledge of the stockmarket. I have a foot in both camps as a long-term stockmarket investor and rental property owner.
I suggest that you look at the long-term dividend record of a good many NZ and Australian shares I obtain a significantly higher net yield from my share portfolio,than from my rental-which is mortgage free,once I account for rates,insurance and general maintenance. I have none of these costs on my shares. In terms of risk,my portfolio has over 30 holdings,giving me a much greater spread of risk than with my rental property.

Touting for business?

Projecting much?

Timewise which one requires more input?

I totally agree Shoreman.
Likewise I have followed Tony for well over 10 years and have found his newsletters written in a manner for the average Joe Blogg like myself and his forecasts especially related to property and mortgages to been very reliable. Clearly, we all have a view as to the future, but I have found Tony to be in touch with the multitude of factors and to have sound reasoning in his arguments.
Having followed Tony's comments (albeit not blindly) at the time I had mortgages on rental properties, I have saved considerably and owe him.

Likewise I have followed Tony for well over 10 years and have found his newsletters written in a manner for the average Joe Blogg like myself and his forecasts especially related to property and mortgages to been very reliable. Clearly, we all have a view as to the future, but I have found Tony to be in touch with the multitude of factors and to have sound reasoning in his arguments.
Having followed Tony's comments (albeit not blindly) at the time I had mortgages on rental properties, I have saved considerably and owe him.

What was it that reinforced your faith in his perspectives? That the cost of debt servicing would go lower?

Agreed and I second that .... he is the most reliable of the bunch and his logic is very subtle ... he does keep his finger on the pulse and his analysis is often spot on.

Growth can be so very very easily achieved in NZ at some acceptable costs.

The future of NZ is very bright.


Acceptable costs by whose standards? I guess it's inevitable because the visibility of the costs creeps up on us so slowly and insidiously that we lose sight of what we gave up for the shiny trinkets.

Exactly but many don't contribute

With that - I assume you're setting an exemplary lifestyle for everyone to follow?

Never mind me, just stick to the facts there is an entrenched unemployed who not only don't contribute but won't.

But isn't our unemployment rate low and getting lower - wouldn't that mean more and more people are contributing? How could you claim that there's entrenched unemployment when more and more people are in work?

Break down the headline number. In some social sectors the unemployment rate is huge as you well know

Which social sectors are you referring to? Our previous government didn't like addressing issues that might be considered race based - so assume we're not heading down that path are we?

Ask Shane Jones. He would have to be the MP with the most openly negative portrayal of the Tangata Whenua. He seems to mention, laziness, booze and drugs in each media piece. I’m not sure if he’s speaking to his people or the fossils that vote NZ Farce.

“Risk of loss of reputation from engaging with businesses engaging in corrupt practices has risen"

You mean like your Australian colleagues taking cash-filled envelopes to facilitate mortgage fraud?


" recent years, we have seen an influx of people from countries where corruption is rife.”
That's why I like Tony Alexander, he calls it as it is

It sounds different when Mai Chen says it.
""If you ever got into trouble with the law, would you ask your lawyer to organise a bribe with officials? Well, that's just the kind of request lawyer Mai Chen has had to reject from clients who have recently arrived on our shores. She says she's seeing growing numbers of clients from Asian nations who don't understand how the law works here, or what passes for criminal behaviour.""

Why on earth do we keep pouring them in to the detriment of our own?

As always, the many must suffer so the few can benefit

Yes there will be blind spots, as Duncan Garner said this morning, the inadequacies of this government is showing.
You can tell that many in the media are getting frustrated by the broken policies already.
Nothing they have said has been done and they are totally floundering and are lifeless

The Blind Man 2 walks down a dead end street and pokes around with his walking cane....there's the problem, I've found it!

"It's the gubmint's fault". Always is in the deepest, darkest regions of suburbia.

Duncan Gardner....? He's sadly become a shock jock since since doing morning TV.

Dg developed his clickbait style on radio live. I gave up

floundering and are lifeless...I thought that was the Christchurch property market?


The Man 2,

Can you tell me what does "Dp" stand for? Tried looking it up on urban dictionary and it doesn't come up with an adequate answer.

Double post

David Parker

Tony : How much of NZ's GDP growth is from actual improvements in productivity ... and what proportion is attributable to flooding the country with low skilled migrants ... cow squeezers , Uber drivers , and grape gropers ...

... nearly 6 months after Jacinda's Labour government got the golden gong from King Winston .. and we still have record high levels of immigration ... and not a single affordable Kiwi Build home constructed ....

We are waiting !

Yep. Still waiting for msm to front Winnie on immigration. Ya shoulda voted TOP folks.... Winnie is all hot air.

Forget the Blind Spots ............ try blindsided , by this useless Government that has only three policies , TAX , TAX and more TAX .

They have achieved absolutely nothing at all other than set up a TAX WORKING GROUP .

Wait until they realize we have been doing okay on the economy through population growth ( immigration ) stimulating demand, and nothing else.

Then they will be in for a shock when we end up broke , running a deficit after it all dries up

.. we do need to rejig the tax take away from production ( wages and business profits ) ... and take some of the fat out of untaxed gains on property assets ...

I'd favour a land tax a water tax , air pollution taxes .... and , other tax research papers previously have pushed towards this idea too .... which is why I suspect Sir Mickey will go for a CGT instead... a bloody awful option ...

I agree the playing field needs to be leveled just as long as anything done is tax neutral overall, a very TOP policy if you ask me.

Level playing field is just a cliche .

More important is the game plan

" assets"

If there is to be a cgt and that is far from certain, an even approach includes capital gains on shares held by individuals and capital gains on the sale of businesses, large and small. Many small business operators trade in leases by setting up shops. And then there are the bigger operators including hypocritical Gareth M who have done nicely. Try balanced comments

Shares are already subject to capital gains.

But so are properties.

and the alternative is what other party? ie National would have been in exactly the same situation and probably realising this even more clearly as they had the helm for 9 years and did nothing about it.

I will take Labour (for now) as clearly doing nothing for another 3 years isnt going to work.

CGT ............ a tax on Capital formation is a hopeless form of taxation for the following reasons

1) It takes years to implement
2) It is easily avoided , you simply dont sell the asset , but gear it instead ( borrow against it )
3) Its a resentment tax always brought in by left leaning Governments to stop people getting ahead in life
4) It seldom generates much revenue
5) It will never bring house prices down
6) If you discourage any form of investment in housing ........... who is going to provide rental stock for those who will never be able to afford a home because they are too slack with money or too lazy to to save a deposit .......... there is no way in hell Housing New Zealand can house everyone , they cant cope with the backlog as it is AND they dont have access to sufficient capital to buy or build mass housing .

We are a Capital-poor country , our capital markets are weak and dont have sufficient depth and we rely on foreign capital when we need it ...........hell we dont even own our own banks , why would you want to discourage capital by agressively taxing it ?

We are and we aren't capital poor.
We have plenty of capital that has been ploughed into bidding up land prices.
However, we're capital poor as its a stupid thing to do with capital.

We are Capital Poor .............. why do you think we rely so much on foreigners deposits in our banking system , or our Bond issues being snapped up by overseas investors ?

Most Kiwis are doing OKAY but are not rich

Blindspot 1 - Interest rates. Lots of easy money. When rates finally start going back to normal we will have a number of companies and mortgage holders in trouble

Blindspot 2 - Poor gdp per capita growth - the government(s) have been pragmatic in a way in that the high immigration rate has artificially boosted aggregate demand during this Global Financial Crisis period. However GDP/capita suffers. We have to wean ourselves off the sugar and get back to a sustainable immigration rate.

Property investors deserve any capital gain that they get!
Firstly they take on the risk that many on here say there is.
Second,y, it is not all “Beer and Skittles” being a landlord.
There are a lot of tenants that are less than average and you see two different sides to people.
Nice as pie when things are going ok but then they turn nasty when they aren’t playing ball and do things wrong.
Thirdly, professional landlords do a heck of a lot of work themselves that they don’t get paid for!
So there is no such thing in renting houses out as “unearned income”.

Property investors deserve any capital gain that they get!
Firstly they take on the risk that many on here say there is.

So anyone that takes on risk deserves to be rewarded? That's a rather peculiar take on investment. Do you think ROI should be "guaranteed"? How?

TM2 IS RIGHT when he says that investors take on the risk that others here have identified

At the moment, the asset class is high risk with low expected returns....doesn't take a smart man to figure that it's not a great least until there's a correction, or a correction...

IO you have just confirmed what TM2 and I have stated about the "perceived" risk that others here emphasize. I agree there is risk and there would never be no risk and I agree there potentially is low cashflow. But its an industry that we love and there is a great reward as an owner in seeing your property functioning well and looking its best whilst also performing for the tenant occupiers as well as the owners. When you say "asset class" your definition is very narrow imo. You are welcome to have your own opinion

Assuming capital gains are gone for now, with returns near risk free rate - one might consider, am I sane?

@TM2 you are quite correct , any investor deserves the best return they can get relative to the risks they take

So we've been told again and again that property is the safe bet, bricks and mortar, safe as houses, etc etc... As such I'd expect housing returns to be poor because as you say, any investor deserves return relative to risk....

(and shillers study, in the US at least, highlighted that housing was the worst investment class by a significant margin...low risk....low return)..

Independent other than seeing you are a financial whizz I don't know much about you or the reasons why you think what you do.

More recently I have had the chance to have different hands on experiences with properties in various sectors and that has given me a totally different insight of those sectors. I have become enthusiastic about sectors which I was previously nervous and apathetic about. Sometimes getting a different perspective will change my personal opinion

Low risk, low return, doesn't sound all that bad tbh.

A "yield seeking investor" is now Defined in Parliament by Stuart Nash the Revenue Minister, as someone who holds a rental investment for 5 years or more. After that timeframe they are recognised as not having the intention to resell under the intention test. He himself has bought multiple rental properties 6 years ago. Some on this site label rental investors as slumlords who should pay tax on gains no matter how long they have owned.

Houseworks, can you please put up a link to the info on yield seeking investor definition. I cannot find any information on this.

Its certainly not on the IRD website yet.

Stuart Nash made the comment in Parliament today. ;-)

I think now this uncertainty surrounding intention has been removed, more rental properties will hit the market further depressing prices. Maybe this is Nash's intention (DGM). Has he told the IRD? They appear unaware because its not on their website ;-)

Last time I looked, statements didn’t acquire the weight of law, regulation or policy simply because they were stated in parliament. Isn’t this the same guy who made the statement about GST on online purchases? He’s plainly an idiot and universally regarded as a lightweight. I wouldn’t shape your day around what he said.

The courts will look at the lawmakers statements won't they when deciding cases?

Generally, no they won’t. If Ird wants to come out with a new policy then they can do so. What this Nash idiot says is neither here nor there

I think there may be a lot of govt mps including the pm now, who have rentals which makes me wonder if they will have a bias against cgt. Cgt is not actually a tool to control the markets and Cullen has said that his twg proposals will be tax neutral. Is it just something that makes the electorate think the govt is doing something

Houseworks, the PM does not own a rental property. There is no evidence whatsoever they intend renting out the Moa road property. Both yourself and DGZ seem to have made the decision. I suggest it would appear hypocritical if Jacinda & Clarke were to own multiple houses given the Coalitions push to increase home ownership. Watch this space I guess.

Not trolling you but it's true!

I'm sure that judges study the parliament's and select committees intentions so they can interpret legislation. In the parliamentary debate to extend the BL test Stuart Nash made his intentions clear imo

"There are occasions when, as the interpreter, the judge departs from the grammar and ordinary meaning of the text in order to give effect to the apparent purpose of the enactment.[11] In this instance, the judge becomes the legislature’s “co-operative partner”

Constitutional role of the Judge: Statutory interpretation

Dude, I’ve got a law degree, and you’ve got a google search, let’s not go there

Oh well
Aussie website at that haha

And why are you on my post? You know what I think of your bs comments :)


If I didn't know better,I would assume that you were laying on the irony with a trowel. Sadly,you are being serious. You are pathetic.

Linklater, pathetic because why?

""New Zealand has quite a trusting culture, its status as the world’s least corrupt country could be at risk."". Kiwis haven't noticed it but Filipino journalists have written about it and so have Indians. I suspect the next list of least-corrupt countries will find NZ behind Singapore, Norway, Switzerland, etc. Reputation takes generations to earn and only moments to lose.