2023 was a second consecutive year where we have finished in better shape than when we started ... which must be something of a surprise to those with a DGM outlook.
This isn't something unique to New Zealand - apart from Europe, this is a worldwide thing.
But that is not to say, all is well. It clearly isn't.
But basic psychology teaches us that we generally prioritise risk aversion over risk taking. And that is more than a 2:1 aversion, more like 3:1. See Kahneman. Or Coates. Or a whole bunch of basic research. That is why those that see risk and reward in a balanced way end up with the spoils.
If you look ahead with 'fear' you are going to miss out in two years of three, or more likely three of four. And you will end up most years 'surprised' things turned out ok, happy to just accept the benefits built by risk-takers as 'normal'.
Sadly our tax system distorts this behaviour even more. It tends to push local risk-takers into chasing tax-free capital gains (like from houses) rather than into productive investment. It also pushes some of these risk-takers into high leverage situations, encouraging them to think they are 'smart investors' by using leverage (rather than from genuinely good ideas).
But this sector hasn't worked out so well this last year. Median house prices started the year at $790,000 after falling from $900,000 at the end of 2021. In 2023 those median house prices plateaued at $790,000 (November REINZ data). While they didn't fall, that was only because buyers pulled back sharply, and for a second consecutive year.
Despite that key corner of our economy being in a subdued state, there was progress in other areas. Inflation eased (although not as much as in other countries), the labour market stayed strong. Wages rose faster than inflation (ignored by most because that doesn't fit the "we are struggling" narrative).
Interest rates for savers took off.
Who would have thought? Certainly not most of those making predictions at the start of the year.
Internationally, globalisation reversed. China, 2021's big winner, stumbled in 2022 and rather surprising their command-led economy failed to fire in 2023. Only tight social control ensured there was no internal reaction. Meanwhile, the US rebuilt its strength.
Autocrats from Putin to Orban to Ergodan to Xi all seemed to make a mess of the empires they surveyed, all the while telling the world what a great job they are doing. They honed their skills further painting lipstick on a pig, locking up or eliminating their enemies.
We had a change of government, peaceful, orderly, a fair fight, and a messy result. But we will make it work.
How do you think our economy (housing, agriculture, tourism, education, to name the key sectors in decreasing size) will fare in 2024?
And don't forget your climate predictions. Pretend you are an insurer (or a lender).
Who will be the winners in 2024?
It is time to test your prediction skills and bravely record them here in the Comment stream below. (Sign up here.)
And of course there is the small matter of bragging rights on your 2023 predictions. How good were they? Here is a quick link to last year's set. More than 200 of you weighed in then.
This article is to encourage you to record your 2024 predictions.
Your predictions can be on any topic that has an impact on the New Zealand economy: anything, including property, interest rates, exchange rates, the RBNZ, insurance, rural issues, the dairy payout, our migration issues, our relationship with China, the big international economic influences, even the shifting international power balance, and the like. But please try to ground them in the economy. (For example fashion, sporting or celebrity comments are not relevant, but climate change issues certainly are.)
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Over to you.
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