By Bernard Hickey
Watch out for the 5 'Black Swans' of 2011
2010 was supposed to be the year when New Zealand's economy accelerated strongly out of recession, powered by low interest rates and a global recovery. Instead, the European debt crisis blew up, New Zealand households clamped down on spending and the US economy failed to fire.
All this meant New Zealand's economy stuttered to a near halt in the middle of the year. So what should everyone look out for in 2011 as the potential 'Black Swan' events that could upset this year's forecasts for recovery?
Irish Politics
The potential for another meltdown on European debt markets remains high and Ireland could again be the trigger for an event that shakes global banking markets and makes it harder and more expensive for New Zealand's banks to roll over their short term foreign debts. Ireland's government is likely to be voted out in a general election on March 11.
The current government agreed last year to essentially impose a massive debt burden on Irish taxpayers to ensure the holders of Irish bank bonds, who are mostly British, German and French banks, don't have to suffer big losses. Most believe this deal isn't politically sustainable and that a new government after the election will try to renegotiate it, forcing losses onto those big banks and potentially triggering new bank bailouts in Britain and Germany.
Chinese inflation unrest
Global financial markets are watching China's economy and its inflation rate very closely. Chinese growth and price figures out this week showed the economy and inflation growing faster than expected. On the face of it, this is good news for the global economy and Australasia, which is benefiting from Chinese demand for commodities.
But many investors and the Chinese government are worried that overheating will increase prices and cause social unrest.
Food prices have surged in recent months, with the prices of some the staple vegetables such as ginger and garlic almost doubling.
The fear is that either social unrest could disrupt the economic growth or Chinese economic leaders slam on the brakes so hard that growth is slowed anyway. China is now New Zealand's second largest trading partner and crucial to the future of our largest trading partner, Australia.
Where the Chinese economy goes, we go.
Australian house prices
Australia's house prices, particularly in Sydney and Melbourne, are the most expensive in the world and have remained remarkably buoyant over the last three years despite collapses in over-valued house prices in Europe and the United States.
Now some economists are worried that a slump in Australian house prices, perhaps triggered by rising interest rates and a Chinese slowdown, could put a major dampener on growth in our largest trading partner. There have been some ominous signs in recent months in Queensland and Western Australia where prices have started falling, particularly in those areas where a lot of new houses have been built in recent years.
A significant drop in Australian house prices would depress consumer spending, as it did here, and therefore slow both the economy and demand for New Zealand manufacturing exports.
Middle Eastern conflict and oil prices
Murmurings about some form of conflict in the Middle East have bubbled away in recent months, centred around the prospect of an Israeli or US attack on Iran, or some form of meltdown in Pakistan. Either would disrupt trade in the region and potentially push up oil prices.
These murmurings may remain just that, given the fears about a wider nuclear conflagration, but it's worth watching.
Kiwi keep their wallets in their pockets
The way in which heavily indebted households and business investors kept their wallets in their pockets in 2010 surprised most official economists, including the Reserve Bank and the government.
Many expect that New Zealand households and businesses will rediscover their spending and investing appetites this year.
But with the debts remaining high, there is a risk that deleveraging and the spending freeze will restrict the consuming and investing parts of the economy, strangling retailers even more after a weak Christmas.
32 Comments
And the fact that energy (which is needed for every activity known to man, including those of the economic kind) is now at $100 a barrel, doesn't rate a mention.
Exellent.
Nine-to-noon had an interview with John Fleming - perhaps our smartest ex-pat ever. . 10.08, today. Don't take my word for it, just listen to the guy.
Worth the hour listening, Bernard. Reckons we're past Peak Oil, reckons we have maybe 5 years to get organised. And if you listen very carefully, he's saying we're stuffed. (30% of renewables is not a game-changer).
Energy - quality and availability - is NO1. irrespective of ME conflict.
These are hardly "black swan" events to anybody with an interest in global economics and finance. However, yes, they may be events triggered by causes that that the mainstream media, general populace, and govt boffins are not aware of.
Black Swan event No6
All Blacks get knocked out of the RWC in the semi finals, Australia go on to win the cup...
John Key is roundly blamed and loses election...Labour wins with Winstons support...Phil Goofs first words in election nite speech says " f**kme, quick someone get me a secure line to NY"......................(the end)
I'm not one that gets worried about most things, unlike the hand wringing one reads on this site, but your No 6 Black Swan (become a cliche!) event is very troubling in every respect.
All good things to watch Bernard. However, Black Swans are never things on the forefront, or things expected. A Black Swan event is something never before seen, an anomoly that changes everything.
Fair point. cheers
Bernard
Bernard please excuse my simplicity but it wasn't too long back when Mr Bollard and Govt advisors were fairly severely warning the NZ people that they must change their ways and stop spending and and get in the habit of saving instead. And stop spending more than they earn and stop living on credit and so on.
Well through this and various unforseen events the people are deleveraging and reducing their spending. You know, do I need it or do I just want it?
So why is Dr Bollard and all those around him monitoring the NZ economy now so taken back and surprised by the lack of spending that has an affect on the retailers.?
I am mystified? I mean did they not really mean the people to reduce spending?I mean we were just telling you! we didn't really mean or think you would do it!
Does this mean these people are not sure really of what they want or do they just like a bob each way so they can jump either side of the fence to keep looking good?
Yes. The irony is delicious. The RBNZ and government was hoping businesses would take up the spending/investment slack. But it's not happening.
A worry for all
cheers
Bernard
In NZ most of our swans are black. (Thanks to the Australians of course)
http://en.wikipedia.org/wiki/Black_Swan
So not the best analogy.
Perhaps Australia and NZ should have White Swan events?
Chris_J
Ha. You got me good there. Hadn't thought of that. Quite right.
From now on I'll talk about White Swan events. Or maybe Kakapo events.
cheers
Bernard
Tui events - yeah right
The social unrest will happen at the bottom of the heap. When you are a peasant in these large populated countries it is a fine line between life and death. Look what happened with the more recent food riots.
A lesson to be learnt from the Irish experiment re bank bonds and new zealand banks are gearing up to go down the same road with covered bonds
In my opinion nzer's are simply trying to make ends meet don't think there are too many saving.
Global Burnout Syndrome – makes us all poorer.
One of the biggest problem is the association of events and the resulting possible severe consequences.
E.g. - Climate change leads to shortage of food and as a consequence lead into social and political problems in some countries with the results of turmoil even war between nations.
E.g. - The shift of world power already escalated to hidden wars – cyber war, trade war with severe consequences to financial, economic etc. Weaker countries suffering under protectionism, trade restrictions etc.
E.g. Natural disasters can and will as consequence further cripple the financial stage of the world affecting nations/ population/ insurances and environment.
E.g. Peak Oil has the potential to starve in a short time not only economies around the globe, but entire nations and their population.
E.g. Economic, financial and social stress leads into political unrest, which can escalate into war between nations. It can cause catastrophic failure of technical plants, such nuclear power stations, oil rigs etc. or extinction of animals/ plants/ nature.
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Unless we see some major changes soon, meaning decision making of our leaders reforming our economy with - planning and implementing a clear structured economy as I described many times, following scenario will happen:
New Zealand’s economy is so unbalanced, with agriculture and tourism the biggest industries biting each other arses and an unhealthy, bloated Property Industry as the third major economic pillar.
Agriculture and tourism will suffer under “Climate Change” and the fact that prices for most everything are rising, but the buying power in general is declining – the two industries which are posing an enormous risk for the stability of our economy. A risk, that nothing is coming from our economy, which really makes us wealthier as a nation, with the chance of reducing our account deficit. Life style standards of the lower and middle class will just deteriorate and unhappiness among many in our society will lead into unrest, like in so many other countries.
As a remote, rather small populated country we will master the long lasting crises as long as the world not getting hot and catches the cold.
yeah kunst.....well all be shoppin down rototai rd
Lest we forget North Korea, rocketing food and energy prices on the back of money printing fueled speculation and of course the most probable rogering for us plebes.....some Lehmans-style cataclysmic implosion of a 'financial product' that most of us have never heard of and nobody understands......
Here is a black swan for John Key........ "An Auckland company that provides vouchers for adventure tourism experiences has gone into liquidation, with $250,000 worth of vouchers unlikely to be redeemable. Total Experience, owned by UK-based couple Adrian and Janice Dewey, entered liquidation on January 17 at their request" stuff.co
I thought tourism was all go.....the lesson is very clear...do not buy vouchers in anything.
I thought tourism was all go....
Give me a call sometime wolly on the secure Spectre-phone - I'll give you the lowdown on Tourism here in the deep south.
Not what I, or anyone else had expected this season.
other black swans for 2011
--runnaway inflation in essentials (e.g. food, oil etc)
--pull-back in monetary stimulas, rapidly rising interest rates
--credit rationing for those reliant on international funds
--political instability spreads (result of top one)
--credit downgrade for NZ
--runnaway inflation in essentials (e.g. food, oil etc) ** TICK **
--pull-back in monetary stimulas, rapidly rising interest rates ** Never gonna happen. You can look forward to QE(n) until system implodes. RBNZ may never lift rates again. **
--credit rationing for those reliant on international funds ** NOPE, in fact it seems that the opposite is true. The World economic forum 2011 (in Davos ) looks like the theme is how to push even more debt around the globe, and big globs of it too by the looks. (100 trillion) **
BTW, where it says "credit", just substitute the word "debt". Credit sounds all warm and fuzzy, so they decided to use that instead.
--political instability spreads (result of top one) ** TICK **
--credit downgrade for NZ ** TICK **
And now how about five positives?
here you go...what do call the positive ones...happy black swans
--- commodity price rises bring NZ trade surplus
--- financial markets hub starts up in NZ
--- important new environmental technology invented in Christchurch
--- Power prices fall because of increased competition
---Oil discovered off east coast of North Island by Petrogras
Gavin : Bernard did do a top 10 of positive things that could happen in the NZ economy , late last year ........ I gather that he's still shivering and most upset by the experience , cathartic as it was , overturning his deep seated belief in gloomsterisationalysing .
......... don't push the lad to come up with 5 golden swans so early in the year ........ allow him time to heal ....... and rediscover his inner hickeysterical core .
rp - where are your positives?
;)
Bernard,
This is poor work, and clearly you haven't taken the message from Nassim Nicholas Taleb that Black Swans are by definition not foreseeable...
So to make a list of so called Black Swans is to immediately categorise them as NOT Black Swans at all, but as something else... just some more data points to factor into decision making...
It is your lack of finance and economics that worries me most about this website... I can cope with the nonsense written every day by your 10 or so consistent contributors... their lack of understanding is expected... you however, should know better.
Horace
Black Swan?? According to a feature in yesterday's paper a new version of Black Swan has just come out, in which the limits of a driven mind are explored: 'explores the distaff side of a morbid dedication to performance, a ballet melodrama in which it just isn't the body that is threatened with disintegration but the mind too'. Could be one of the top releases this year to watch out for.
you may be Matt...if there is continued monetary expansion I will be very disappointed... spineless policiticans will lead us to ruin
you may be right Matt...if there is continued monetary expansion I will be very disappointed... spineless policiticans will lead us to ruin...surely this has to stop
surely this has to stop.
Eventually yes, when the current financial (keynesian) and social systems (socialism) finally collapse under their own weight as they surely will. Its just a matter of time. By their design they are both self-reinforcing and eventually self-destructive.
I thought Black Swan events were, by definition, unpredictable?
We should be aware that such events can occur, we just don't know what they will be or what will be the cause.
If I understand Taleb correctly, Black Swans are not merely unpredictable, but are things that are uncontemplated because all past experience argues against them.
This list is the complete opposite of Black Swan events - it's a rehash of the things that people were worrying about last year.
I think in fairness to Bernard, he probably means black swan events that will be viewed in retrospect this year...crystal ball gazing is always hypothetical until after the event.
I wonder what the Chinese administration is making of the anti-authoritarian riots in North Africa….potentially a very large black swan.
On the subject of 'black swan' events being unpredictable, I would say that they are unpredictable to the masses, but not to the few. Surely for every significant event that happens in the world there are some people who were thinking that a particular event might happen.
I personally think Peak Oil will be the black swan. Most people have never heard of Peak Oil. So when we reach the tipping point and enough people become aware, they'll look around and say 'Oh my gosh, who would have thought!'. Then people like PowerDownKiwi who has been rabbiting on about the subject for decades will slap his forehead and groan/cry.
Then again, people will probably blame all sorts of different 'causes' because they all contribute to the problem. Over-population, weather changes, soil erosion, the government (it's all their fault! Yeah right...) are the ones that come to mind.
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