David Hargreaves sums up the first (nearly) six months of the year and thinks it would be a very good idea to stop it and start again. Unfortunately though, we will have to carry on. Here's what's transpired so far...

Like property market reform and improving per capita output, the ComCom thing is just another issue that gets talked about every now and then but little action seems to take place. If NZ was serious about enforcing real competition, we would have something similar to anti-trust legislation that the US has. Until that happens, little will change. 

Fairly obvious that in a startled response to covid the OCR was crash dived too low. If the mantra of encourage to borrow to spend was planned as part of that then that was one of the worst about faces NZ has ever witnessed given the well recorded and justified lamentations of previous Finance Ministers and RBNZ governors that NZr’s evidence one of the worst savings performances in the world. There are undoubtedly very many now rueing taking part in that daft 180.The point that two thirds of the population are out of OCR affect by being mortgage free must be tempered by those that are tenants and mortgage hikes obviously will increase rent. The thing is though even when the first OCR cut eventuates it will be 0.25% and further reductions will be hesitant, rather than flowing Therefore people envisaging that as being a salvation are going to be disappointed to find how little it actually assists in the short term.

Housing is the biggest drag on the economy.. people are so indebted, there is no spare money for anything else.. we top the charts for highest rents..

That shock is very close and its a world food shortage/crisis thanks to adverse weather/Ukraine war -( 30+ % of grain producer) increased freight costs and delays courtesy of the Suez and Panama canal issues and widespread anger in Europe especially of farmers protesting with tractor convoys and manure spreading not on fields but Govt offices. The anger evident in much of the world is emerging  - at worst two European Prime Ministers shot in assasination attempts, political upheaval in France and Germany and UK in July and the growing threat to illegal migrants (Invaders in locals eyes) with some countries now looking at forcible repatriation. Such widepsread anger bordering hate is close ot becoming irreversible and if higher for longer interest rates create mortgagee sales in volume those perceived to be responsible will be targets, Orr should very carefully weigh up the tipping point.

It is probably brutal for some - hopefully the long term effect will be good for NZ in that people will learn how economic cycles work and the need to save in the boom times for the next bust. For people and businesses..  it applies to choice of business, career, investments, where we choose to live and much more.

I suspect most the moderately wealthy people in NZ are low risk investors, who have stable careers, work hard and save a lot (in the US they used to say most millionaires drive toyota corollas). Not those that gamble in property and buy expensive stuff.

Agree, they have done enough now, we have enough evidence that inflation is under control.  They need to get down to “neutral rate” levels fairly quickly. 

The idea that we are on for a soft landing is a fantasy.

This is one of many falsehoods sold to us by the central authorities to make us feel like things are under control.

Then when things get really bad, they can say they had good intentions.

yes we are not going to avoid the unpleasant fallout, but more importantly what is the powers that be plan to address it? 

It would appear unlikely a resurgent RE market or net migration gains are an option on this occasion.

Lower (and lower) for longer?

I have had this view for a year now, we are actually ahead of most of the world, who will follow us down.

All I am spending money on right now is food, rates , power and insurance.     

I suspect many are in the same boat and some people are in sinking boats.

Easy capital gains are gone and people are looking at what they have to save for retirement.

It will be a massive job to 'significantly exceed domestic and offshore private sector saving (offshore saving is basically our current accout deficit)' given the current level of our account deficit. I don't see that happen in the short and mid term future of New Zealand.

The electric car depreciation is over and above the impacts of the slowing economy. Some models falling up to 60% in the first year.

The caravan, motorbike, portable spa and jet ski market are also worth keeping an eye on. Lots of people are going to be liquidating what assets they can very shortly.

For about 10 years I've geared my living standards to survive off minimum wage if need be. If things dry up and stay bad long enough, I'll just divert my time from active commerce to full time homesteading. A big part of me eagerly longs for such conditions.

Hang in there. Haven’t even got to August. Worst month of all. Cold grey, mostly sodden, lifeless vegetation. Living in the USA everybody hated August too. Overheated, dusty, burned off vegetation. Let’s ban August.

Yes, the employment situation is worse than current statistics are portraying. The slowdown in the NZ economy is very real and it is starting to worry me. We must have a slow but steady downward progression of interest rates, starting from November. Starting cuts only in mid 2025 (as forecast by the RBNZ) would be too late, and it would introduce a significant risk of a seriously deep fall in economy activity. 

I fear that Orr is going to repeat the same mistake that he made during Covid, when he kept interest rates too low for too long while ignoring clear market signals - now he risks doing the same by keeping interest rates too high for too long, unless he starts acting in November.   

Dominant 

Indeed. One only has to look at recent share price performance of The Warehouse, Rymans, Oceania and Fletchers to get an idea of where retail and construction are headed. 

Here you go - the biggest contributor to GDP last quarter was 'unallocated', which Stats do not include on their graphs! This looks to be a problem Stats are having with *when* to allocate some of the unknowns. The 'unallocated' contribution weighed negatively on GDP in 2023 and then suddenly swung round to do all the heavy lifting in Q1 2024! It does average out overtime though.

We will need to see some radicle reform, ACT will be up for it, not sure Winnie will be.... not sure National have the vision

We have seen two possible contenders rise, Gaming and movie production, but Offshore provide better tax breaks so they leave.  Gaming revenues could be a massive earner.    Given the scale of asset correction to new interest rates, and reduction in of tax revenues, I think we are in for a once in a generation correction.   It may well be that we are simply the canary in the coal mine.

IMHO which ever way China goes, we go with it.

IT GUY has good observations below.

We are reliant on agri/forest/hort/fish. One can't pick up the land/water resources and relocate to another land mass.

IMO Kiwis are smart in innovation, digital and other tech. But (again IMO) once the find their success, they are bought out by an offshore player. We just don't seem to keep them here and capture the long term benefits.

How do we get them to stay pit in NZ?

Entrepreneurs and developers what would it take to persuade you not to cash out to offshore, and grow your initiatives here in NZ?

Comment of the day. Well said.

Crikey thats a bit harsh. When the chips are down food is what always sells. And we sell plenty. Or we did. All those pine trees are making inroads.

There has been there, a massive increase in staff. That will include a bevy of ego justifiers, promoters and insulators of good internal feelings and screening out bad news,  respectively.  That way, to them what you are saying, will be nothing less than a heretical falsehood. Call it the ivory tower syndrome if you like.

I think it's much harder for the RBNZ to navigate an economy that's been suffering from a serious case of productivity anemia for some considerable time. All appeared good on the surface whilst many naive folk partied hard with the growing herd using money that wasn't even theirs to begin with. Now that the much overdue reset is upon us, many are awakening to the true cost of folly (edit) Some have found themselves better positioned than others. 

As house prices resume falling, the rest of the world watches on to see how our housing centric economy lands....... 

TD 5.95% at WP on Fri. Pushed for 6.0% but declined by branch manager. 12 months, QTR interest. I’m comfortable but not happy. Prefer inflation to be 3% with these rates.

Number of employed is only 2.9m of 5m = 58%, or roughly every 3 workers are supporting 5 people in the population.

In terms of unemployment, the unemployment rate is 4.3% but the underutilization rate is about 11%, so roughly only 90% fully employed.

As you say...IF.

" But, how realistic is it that these deals will be set-up and stimulating the economy in the next 12 months - to the tune of, say, 5% of GDP? That's $20bn a year of new bank credit. Really?"

With no new shovel ready infrastructure development on the books any timeframe for significant 'stimulus' can be measured in years....meanwhile?

Stimulating far too much when it wasn’t needed (say post Covid period) and potentially now unable (or politically unwilling) to stimulate when it really is needed. Could exasperate the severity of the boom and the following bust. 

The most predictable consequence is that the entire real estate market will collapse as the vast majority of sale and purchases would no longer have finance.

The Bluebridge has been the only choice for me for a couple of years. I will only sail in good weather now. There is no chance of rescue in bad weather. 

Shares are as overpriced as they have ever been - eg some levels as 1929/2000 booms relative to fundamentals/risk free returns. 

What changes in our economy are required to cause a sustained bounce and growth.... China our biggest trading partner seems to want to buy raw products off us, as its more cost effective for secondary processing of milk power to food, logs to timber, fish  etc offshore.

Fonterra is selling its secondary production companies, says it all really, we cannot compete economically.   This has been the case for a long time, but we have managed to mask the lack of productivity in our economy by the wealth created from the housing market, now the music has stopped and there are many holding the debt, that will not receive any reward.

The UK back in 1990 had a more diversified economy then NZ currently has, they still suffered a substantial housing slump with considerable negative equity.   We will now see the same thing.   We need to work out how to get through the current crisis as well as how we reform our economy to bounce out of recession, as I keep saying .....    the existing debt is not going away, and the service cost is going to constrain any investment in new growth initiatives.

https://www.newstatesman.com/thestaggers/2022/09/housing-crisis-negativ…

Those arguing we shouldn’t be too worried about a negative equity crisis now because we survived it in the early 1990s should consider how different the housing landscape is today. For a start, homes are much more expensive versus incomes than they were in the housing boom of the late 1980s. At the 1988 peak London homes cost an average of 5.5 times the average salary. At the moment it’s 11 times salary, meaning the relative amount of negative equity is much harder to pay off with wages or consumer debt.

The government was also encouraging lending with deposits of just 5 per cent until as recently as last year, leaving homeowners – especially young people who have only recently got on the housing ladder – with only tiny amounts of equity before they are wiped out and trapped. The rise of shared ownership schemes similarly locks people into their mortgages. We are staring a full-blown crisis for owners in the face.

Not sure about buying shares just yet, but yes agree we are probably near the bottom. I feel like the RBNZ have overshot again and we’ll see the OCR frantically lowered and another unsustainable boom coming. That is just one of the possible scenarios from here. 

This would be the right time for counter cyclical building. Unfortunately Labour had to do it at the worst possible time after the previous National government sat on their arse  

Labour government housing spend timing was completely wrong. They we competing when resources were scare and driving up prices. There are numerous examples of this.

Our economy has for many decades run on net govt or bank stimulus of around 5% of GDP, which allows some wealth accumulation / savings, and GDP growth of 2% - 3%. So what does adjusting to no stimulus look like? It looks like a complete collapse because our economy is geared to move money to the rich rentiers as quickly as possible. But when the stimulus money isn't flowing into the economy, everything falls apart. The poor and the workers hand all their money to rentiers and then they riot.

This is what I find so hilarious is people so ignorant of brain injuries they do not comprehend they happen to the brain and not to the rest of the body. Its like they are the ones severely incapable because brain injury is kinda in the name. Protip someone with a TBI & post concussion can still walk and do exercise, however they might often forget where they were every 10mins, have severe headaches, panic attacks, visual occlusions, could frequently pass out, and lose the ability to read and write for many years. I know several that lost the ability even to remember their own birth date, address or even how to spell their own name and that of family members. There are also significant effects if a person has had repeated concussions as it is well known that significant long term damage can occur with repeated concussion events and they take longer to recover from (this is also often very detectable in post mortems as well).

Also it is well known that ACC often denies the long term rehabilitation necessary for brain injury treatment and recovery. So many have to take more time to recover from effects as they are often doing it without the minimum medical support available in other countries (often doing it alone). Brain injury & severe concussion patients can still do usual exercise, eat and sleep to help general health but for the brain to repair connections and damage it often takes a longer time then bones to heal and is a much more gradual process. One dude took 3 years to recall the names of objects in a home & to be able to write for an hour. His hands would shake a lot in that time, he could not hold a spatula let alone the small drills or paint brushes he often previously would use. ACC provided zero rehabilitation support, just a short psych interview to assess the damage every 3 months (e.g. the whole remember 5 objects test, how to fit shapes together etc, which the dude frequently failed even 2 years later even though they started as a practical engineer & part time engineering lecturer).

Your point?

“And when several conservative parties displaced New Zealand’s former progressive government at the last election, she felt “cynical and hopeless” about New Zealand’s future.” - I knew this would happen!

I read that article this morning, and it did make me smile when I read their comment blaming our conservative government, before then mentioning that they'd taken a job at a mining company. 

So she then takes up a job in the mining industry... sure she was for the "progressive" govt, nah she was in it for her own interest and work. If we had the mining jobs here that she could be employed in she would be in NZ. Her morals and ethics were nothing to do with the level of progressiveness in politics and more to do with where she could get the best wage for work (after all we still have an open casting call for the low wage work in elderly care support, hospitality, supermarket checkouts and agriculture she could easily have picked up work in at any time).

You do realise that the momentum of the economy is driven by policy settings anywhere from 12 to 24 months previous due to lag time? So if you feel that the NZ economy is nosediving right now, you know who to blame. Unless you are being partisan about it, of course.

If you're a Reserve Banker your job is presumably secure and well paid with very little skin in the game. Unemployment, downsizing and business downturns are problems for everyone else.