NZ economy shrinks 0.6% in December quarter

Public Policy / news

New Zealand economy shrinks a more than expected 0.6% in December quarter

16th Mar 23, 10:57am by Dan Brunskill

Economic activity slowed by more than half a percent in the last three months of 2022, led by declines in manufacturing, retail, and hospitality.

Data related by Statistics NZ shows gross domestic product fell 0.6% in the December quarter, bringing annual growth in the economy to 2.4%. The decline followed an unexpectedly strong increase of 1.7% in the September quarter.

The drop in economic activity was worse than predicted by most bank economists and dramatically lower than the 0.7% increase forecast by the Reserve Bank.

It is possible the December decline could be the beginning of a technical recession, which is defined as two consecutive quarters of shrinking activity.

However, ANZ bank economists said earlier this week that a weak GDP was “payback” from the “whopper pace of growth” in the September quarter.

Statistics NZ senior manager Ruvani Ratnayake said nine of the 16 industries experienced a decrease in activity compared with the September quarter.

The manufacturing sector was the biggest contributor to the slowdown — with a 1.9% decline — but arts and recreation had the largest drop down 4.2%.

Fewer investments in equipment and machinery led to the drop in manufacturing, while reduced outputs in food and beverage meant a drop in dairy and meat exports — primary industries fell 1.3%.

Activity also declined in industries related to tourism, such as accommodation, retail and transport, which would normally be higher during the warmer months bolstered by tourism.

The number of overseas visitors during the quarter was still below pre-Covid levels, despite travel restrictions being lifted in August 2022.

Business services, which makes up approximately one tenth of the economy, grew 3.3% and helped to offset falls in other parts of the economy. This was driven by increases in advertising, market research, and computer system design.

GDP per capita fell 0.9% and real gross national disposable income, which measures the countries purchasing power, dropped 1.7%.

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111 Comments

by Mr Frank | 16th Mar 23, 11:01am 1678917687

Here we go.

Just in time for the election for voters to wake up to the wrongs of Labour over the last few years.

The sugar highs from the printed money is now over.

I'm worried about people's debt. When I go out and see how many people are still shopping up a storm (wants not must haves) I do wonder how they afford all these things.

by northman46 | 16th Mar 23, 11:01am 1678917718

I thought cooling the economy down was the whole point?

by ikimpaul | 16th Mar 23, 12:26pm 1678922762

Yes and No. Interest rates are lifted in order to stop inflation ie people have higher mortgage payments, less disposable income to spend on goods which reduces demand for goods and consequently prices are reduced to stimulate demand and inflation falls.

The biggest risk with Monetary Policy is overcooking your interest rate rises and you get a big fall in demand , people dont gradually stop spending - they rapidly stop spending , demand falls away suddenly and you get a recession.

Most monetary policy is done slowly- ie tweaks to interest rates over 1-2 years - disposable income slowly reduces, people gradually adjust their spending and businesses respond accordingly and this is called a soft landing for the economy.

Then you get what we have - the reserve bank has had to do big lifts in interest rates in consecutive months (mainly because of the high number of fixed loans- its taken well over 18 months for the impact of interest rates to affect most mortgages). The impact of those interest rates are suddenly hitting mortgages as big lumps - we are hearing as people refix increases of $800 -$1000 a month - which is ALOT to come out of disposable income. People have rapidly stopped spending, demand has fallen away and now we have a recession. Which is known as a hard landing.

What actually we now have is more than a hard landing we may have stagflation : Stagflation is an economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.

Unemployment is still low- but we definitely have no growth and inflation will continue as a result of the cyclone and weather events affecting supply of goods (fruit/ vege) and increasing demand for certain items such as household goods/ furniture, building materials etc. The key will be for the RBNZ and the government to stop unemployment rising too far.

For those who want a simple explanation of stagflation.

https://www.investopedia.com/terms/s/stagflation.asp

by lowercase capitalist | 16th Mar 23, 1:24pm 1678926274

Most monetary policy is done slowly- ie tweaks to interest rates over 1-2 years - disposable income slowly reduces, people gradually adjust their spending and businesses respond accordingly and this is called a soft landing for the economy.

The reserve bank has been raising interest rates for almost 1.5 years now and are predicting rates to top out around the 2 year mark. Would you say that they've been raising at the correct rate?

by Whatwillhappen | 16th Mar 23, 1:58pm 1678928336

Yes, but the issue was that the base they started from was too low, meaning the rate of increase was higher than it should have been.

by ikimpaul | 16th Mar 23, 4:01pm 1678935687

No - general Monetary policy in the last 30 years (2007-08 been the most recent area of evidence) would be to raise in 0.25 increments - every 2-4 months so raise then wait a cycle and then rise again - thats slow monetary policy to stop overheating the economy

in this case they started that way with a couple of 0.25%, quickly went to 0.5% and then in Nov we got a big .75% - those are big rises and there ahve been consecutive rises.

the biggest issue however is NZ's obsession with fixed interest rates. Australia has reached a similar economic point to us - with lower rises (highest rise so far is .50% and they are now using .25% increments) , starting later- they now have only been raising rates 11 months. The big difference Australia uses variable rates- so the mortgage impact hits immediately - its not delayed until the fixed term expire and people get used to their disposable income going down overtime. So they cut their spending overtime, rather than all at once, which is what's occuring here in NZ when Average Joe's fixed term expires and he needs to come up with an extra $800 a month from next month

by K.W. | 16th Mar 23, 5:39pm 1678941596

Australians have taken advantage of low fixed rates, and instead of the usual 90% being on variable rates, this is now down to 60%, so they are less sensitive than they used to be. However, the real reason why the RBA hasnt gone as hard or fast as the RBNZ is that Australia does not have wage inflation. They don't have a Govt handing out 24% pay rises to public sector workers, or 7% increases to minimum wage workers (bringing the increase in minimum wage under the Labour Govt to 44%), nor increasing welfare payments to the level where its now more financially advantageous to not work, which is why the number of people on JobSeeker has increased almost 30% under Labour.

Another reason why wages have been kept down in Australia is because they have a high level of immigration, with over 400,000 new workers arriving in the last year (plus all the international students who were given uncapped work rights). As should be apparent by now, hardly anyone wants to immigrate to NZ any more, and for the few that still do the Govt seems unable to process them in a timely manner, so we remain short of everything from bus drivers to nurses.

by Stev-O | 16th Mar 23, 5:54pm 1678942455

And now teachers b*tching about how they are so close to the minimum wage so they deserve huge raises. Labour basically fked the country and everyone in it :D

by K.W. | 16th Mar 23, 6:17pm 1678943840

When you raise the minimum wage by 44% you wipe out a lot of people's wage premium they get for their skills and experience, so that 44% wage rise flows through to everyone else who demands to be compensated above minimum wage level. The minimum wage was always designed to be a starting wage that encouraged employers to take on someone young and inexperienced, to give them a chance, and hopefully turn them into decent employees at which point they got pay rises. Labour doesnt seem to understand this and thinks its like being on one of their benefits for life (another area where they confuse temporary with, not just permanent, but intergenerational dependency)

by Prickle | 16th Mar 23, 10:08pm 1678957730

NZ has always been a low waged society. About time incomes were increased. Sorry about the inflation.

by OldSkoolEconomics | 16th Mar 23, 1:39pm 1678927171

Spot on.

Reserve banks spent years printing money and holding OCR too low in order to keep the party going, missed the start of the inflation/downward cycle, pumped asset prices and created a massive rich-poor divide - all with no plan or regard for what would happen when they ran out of tools to control events (we will all find out now).

Recessions, bank failures, some massive corporate bankruptcies, country financial collapses, increasing unemployment, social unrest and some climate disasters will be the start of the next, lengthy economic cycle... I also suspect Russia, China and Co have been watching with interest and will be ready to add some fuel to our self inflicted fire.

by K.W. | 16th Mar 23, 5:27pm 1678940858

If central banks are intimidated into not raising interest rates any more due to impending bank failures, then you can guarantee we are going to get stagflation.

by JRSNZ | 16th Mar 23, 11:03am 1678917838

Debt, debt, and more debt. The monthly Centrix numbers are beginning to tell the story.

by Mr Frank | 16th Mar 23, 11:07am 1678918022

Govt: "This is an expected result of higher OCR" aka not our fault.

by npc | 16th Mar 23, 11:20am 1678918845

If only people were capable of second order thinking. The OCR is up because the government printed an insane amount of money in a flawed response to Covid.

by IT GUY | 16th Mar 23, 11:27am 1678919227

The world printed an insane ammount of money, our governemtn followed along for the ride.

by Yvil | 16th Mar 23, 12:59pm 1678924783

The government didn't print any money, the Reserve Bank did.

by Foxglove. | 16th Mar 23, 1:11pm 1678925495

Yep they wilfully printed it and the government wilfully spent it.

by K.W. | 16th Mar 23, 5:42pm 1678941763

Yes, but think of all the old people who Jacinda single handedly saved from Covid so that they could die from dementia, heart disease, cancer and the flu a few months later. Totally worth it.

by AndrewRiddell5886 | 16th Mar 23, 6:02pm 1678942957

Do you have a skerrick of humanity anywhere?

by Advisor | 16th Mar 23, 11:35am 1678919751

Ironically, it is a 2.4% QoQ ($354m) pullback in government spending that has led to much of this economic contraction.

Hipkin's policy bonfire, natural calamities in Q1 and end of tourism season will take its toll on Q2 numbers. Q3 will have the effects of phased reintroduction of full RUC and fuel excise and winter construction slowdown. All this while, monetary tightening will continue to bite households who refix at higher mortgage rates.

by OldSkoolEconomics | 16th Mar 23, 1:57pm 1678928270

RBNZ asked govt to stop spending.

The recession is deliberate - RBNZ need unemployment up and spending to fall.... essentially that situation equals demand for people and products stopping rising so quickly and thus prices stop rising so slowly -> which is the definition of less inflation.

The issue surely is the increasingly likely out come of more than expected wealth destruction via house price / asset price collapse, a much larger than planned recession and at the same time continued inflation. Basically the probability that RBNZ loses control of events and needs to drop and raise the OCR simultaneously to solve the problems.. which is obviously impossible... so someone (everyone) has to suck up increasing prices, increasing unemployment, falling asset prices and general financial chaos for a while

by Advisor | 16th Mar 23, 3:03pm 1678932183

The post-Covid response from both fiscal and monetary authorities was grossly overcooked. That is saying something in an economy that has received plenty of stimulation in the last couple of decades for elected officials to save face on policy failures and gradual de-industrialisation.

To say fiscal easing during Covid was inflationary would be an understatement. The hundreds of millions spent on studies and plans by MBIE alone were low value for money and lacked intellectual grunt. No industry is going through a transformation simply because it was dreamed up by policy stooges in Wellington.

by interesting1234 | 16th Mar 23, 6:10pm 1678943420

Can vouch for this, I have seen that manyjobs going at MBIE through 2020-2022 it was mindboggling, all for 80k+, know many who jumped ship there and negotiated great base salaries. How long before the restructure is the next question

by Yvil | 16th Mar 23, 4:14pm 1678936494

Time to go surfing perhaps, OSE ?

by K.W. | 16th Mar 23, 5:56pm 1678942575

And that is the problem with giving the Reserve Bank a dual mandate - the policies for reducing inflation and preventing unemployment are diametrically opposed. You can thank the Labour Govt for that one too

by dumbthoughts | 16th Mar 23, 11:13am 1678918406

100% this. I think that whether we had the current government or were inhabiting a different timeline where National won the last two elections, the chickens would be coming home to roost because society has become more addicted than ever to debt and the impending hangover is looking nastier than mine after university O-week all those years ago.

Successive governments have had a role to play in this of course (for various reasons) but ultimately the average Kiwi consumer has decided - over and over again - to tick up so much in life and the can has been able to be kicked down the road for so long.

Credit cards, car loans, Q-card/interest-free offers, BNPL, leveraged home loans ... in the land of easy money the borrower has long been King. And now the King might be finding out that his throne sits on shaky ground.

by IT GUY | 16th Mar 23, 11:18am 1678918728

The classic kick the can down the road will occur.... bailouts, currency debasement.....

by tothepoint | 16th Mar 23, 2:25pm 1678929938

A recession will help sort out those people and businesses which hold unsustainable levels of debt.

In doing so, it will restore order to the economy which is never a bad thing. Anyway, a recession is a normal market response following a period of excesses.

Enjoy it while it lasts. Certainly, it will provide opportunities for shrewd (counter-cyclical) investors.

Market discipline rules!

TTP

by IT GUY | 16th Mar 23, 11:37am 1678919867

The Spriukers will only go into hybernation, they may well rise from the dead in the 2030s version of timeshares.

We MUST REMAIN VIGILANT

The best part of this, is there is a very good chance, that I will never have to watch Phil Spencer and Kirstie Allsopp ever again.

by Retired-Poppy | 16th Mar 23, 11:47am 1678920434

TTP, now that your narrative has changed from "its always the right time to buy your dream home" to now buy counter-cyclical and therefore time the market, what advice are you now dishing FHB's? Oh that's right, only if you're in for the long term should you buy that dream home......

by IT GUY | 16th Mar 23, 11:48am 1678920498

Even HW2 is manning the lifeboats now.....

by tothepoint | 16th Mar 23, 12:39pm 1678923570

Hi Retired-Poppy,

If you can afford your dream home then, certainly, go ahead and buy it. I would…..

And I’ve never said differently to anyone else.

TTP

by JimboJones | 16th Mar 23, 12:44pm 1678923895

The unshrwed?

by Foxglove. | 16th Mar 23, 1:13pm 1678925625

What a pity Paul Keating, way back, stole the line of this is the recession we had to have because this government hasn’t been able to think up a better one.

by K.W. | 16th Mar 23, 5:23pm 1678940601

Just in time for the election for voters to wake up to the wrongs of Labour over the last few years.

No that will come in June, when the really diabolical March quarter numbers come in. Can't wait. Bring popcorn.

by IT GUY | 16th Mar 23, 11:07am 1678918055

Shocker , we are almost techically, proper f..ked.

by tothepoint | 16th Mar 23, 12:56pm 1678924589

Hi IT GUY,

Your comment above is a show of mindless, crude DGM language.

It contributes nothing to the debate - other than to reveal the actual state of your cognitive processes.

TTP

by Retired-Poppy | 16th Mar 23, 1:22pm 1678926126

Any excuse for Ad-hominem.........

by IT GUY | 16th Mar 23, 2:01pm 1678928488

Nifty tried that all yesterday to distract from the fact that central Auckland had fallen 400k.......

by interesting1234 | 16th Mar 23, 6:12pm 1678943525

400k......plop

by aucklandproper… | 16th Mar 23, 11:13am 1678918427

Is anyone expecting anything different?

This is definitely bullish for real estate. The last thing the economy shrank 10% during COVID-19 in 2020, real estate prices boomed.

This time is NO different.

by IT GUY | 16th Mar 23, 11:17am 1678918642

Yeah quickly break you term deposits and go buy off a bankrupt developer by closed tender.... / MAX SARC

by aucklandproper… | 16th Mar 23, 11:25am 1678919153

Pfft...real estate services still show a positive print +1.9% y-o-y.

The economy was badly led down by the non-productive primary industries (-4.3%), mining (-8.5%), manufacturing (-5.3%), agriculture et el (-4.0%) and Goods-producing industries (-1.4%).

If only everyone all went into property, #recessionaverted

by Prickle | 16th Mar 23, 1:21pm 1678926100

I think the real estate market has bottomed out. Now is the time for renovator so to buy. Interest rates have peaked. The market isn’t going to inflate due to an excess of houses. But it isn’t going lower due to steadying of interest rates. FHBs are looking for nicely done up places in good areas. Now is the time to find that dunger and develop it. Find several if you can afford it. Money to be made, not through inflation, but through doing up tired houses for FHBs. It’s not free money, it involves work and creativity, but money is to be made.

by Sluggy | 16th Mar 23, 1:46pm 1678927593

For Real... That has got to be the worst bit of advice I have ever seen.

by Harvey W | 16th Mar 23, 2:18pm 1678929499

Prickle's right....and inflation helps too, remember it's the reduction in purchasing power, house prices rising by the end of the year ..

by Sluggy | 16th Mar 23, 2:43pm 1678931034

Housing 2023 is gonna look like shares in 1988. The sheeple will be looking for the next road to riches.

by HW2 | 16th Mar 23, 9:01pm 1678953716

You shouldn't discount the late 2008 through 2009 property market

According to the ASB survey, July 2008, was seen as the worst ever time to buy a home. It turned out one of the best times

by Solid_Granite | 16th Mar 23, 7:58pm 1678949926

If you find an investment's biggest ally is high inflation... maybe not the best investment decision.

by lastlegs | 16th Mar 23, 11:18am 1678918690

orr told us last year that he was deliberately engineering a recession so why the anguish?

by gregevir | 16th Mar 23, 11:21am 1678918866

-0.6% drop in nominal terms is about -4% drop in real terms Q-o-Q

Hold the fort comrade (read team of 5 million!)

by JohnfromtheTron | 16th Mar 23, 11:33am 1678919601

Due to everyone leaving for Aussie it's now the team of 4.9 million.

by aucklandproper… | 16th Mar 23, 11:37am 1678919833

Once you leave, you are not part of the NZ team?

by IT GUY | 16th Mar 23, 11:39am 1678919987

Correct we shut the door and don't let you back in.

by K.W. | 16th Mar 23, 6:00pm 1678942850

You tell people that you are Australian, in the hope that they don't ask which University you got your "Maori Science" degree from

by HSL | 16th Mar 23, 7:35pm 1678948502

Ha that’s actually one of the reasons why I plan on leaving. Do you think a degree from a woke nz university is going to be worth anything in the future….nah. I want my kids to have access to decent education even if I have to pay……I will be able to afford to in Australia….

by Pragmatist | 16th Mar 23, 2:51pm 1678931465

Nope. The 0.6% drop is already in real terms. So it a gain in nominal terms, but less than our current rate of inflation.

by Mr Frank | 16th Mar 23, 11:24am 1678919083

Govt: "It's not our fault. Blame COVID, blame Putin, blame Orr, blame the previous National govt. These challenges are all due to things beyond our control."

by Nzdan | 16th Mar 23, 11:35am 1678919718

I mean the ANZ economists explain in the article why they believe it shrank, there's not a mention at all of "ducking and diving" from Government.

Anyway, if you recall annual GDP growth went negative when it fell from +3% in 2007 to -1.1% in 2008. Curious to know why you think that happened?

by JimboJones | 16th Mar 23, 12:56pm 1678924582

The RBNZ did openly say they want to cause a recession. But blame Labour if it makes you feel better.

by chebbo | 16th Mar 23, 11:26am 1678919216

NZX50 taken a new leg down on the news, it seems.

by Kiwisaint | 16th Mar 23, 11:29am 1678919356

Beware the Ides Of March

by False economies | 16th Mar 23, 12:07pm 1678921637

Love Iron Maiden! ;)

https://m.youtube.com/watch?v=MK667IOHtsw

by Kiwisaint | 16th Mar 23, 2:29pm 1678930150

Yeah - great opening track. Steve Harris also co-wrote instrumental track 'Thunderburst' on the Samson album Head-On (Bruce's previous band) in 1980. This preceded the 1981 Iron Maiden Killers album. He slightly changed the arrangement for 'The Ides of March'.

Refer to 'Thunderburst' at 27 seconds here;

https://www.youtube.com/watch?v=pEPIC8yTvtQ

by Prickle | 16th Mar 23, 4:02pm 1678935743

Iron Maiden. I thought you were referring to Shakespeare.

Caesar. Who is it in the press that calls on me?

I hear a tongue, shriller than all the music,

Cry 'Caesar!' Speak; Caesar is turn'd to hear.
Soothsayer. Beware the ides of March.
Caesar. What say'st thou to me now? speak once again.
Soothsayer. Beware the ides of March.
Caesar. He is a dreamer; let us leave him: pass.

by Prickle | 16th Mar 23, 4:04pm 1678935882

Never ignore the soothsayers

by Wrong John | 16th Mar 23, 11:30am 1678919417

We were caught up with this in our business [in October] & were looking at the September GDP numbers & thinking what did we do wrong? Now we know, it was tough across the board. Not sure I feel any better with hindsight. It still hurt.

by bw | 16th Mar 23, 11:43am 1678920205

So a much higher OCR then?

If not, the NZ$ will fall = Higher Imported Inflation.

The alternative is to lower the OCR = a Lower NZ$ = Higher Imported Inflation.

Rock and a Hard Place for interest rates.

by tim52 | 16th Mar 23, 11:51am 1678920704

I think we have to hope overseas central banks cut their cash rates quickly and further.

by bw | 16th Mar 23, 11:57am 1678921053

Which is akin to saying" We are going to rely on more foreign Debt to run the country" by providing a better return on invested funds.

It can't go on. We can't keep creating Private Sector Debt to pay for imports that aren't backed by Productivity.

by tim52 | 16th Mar 23, 12:35pm 1678923320

Of course we can't but neo-liberalism demands we pretend everything's fine until we can't deny it any longer and keep bailing out more and more until there is nothing left. If everyone else cuts we can extend and pretend for a little longer.

None of our leaders or potential ones have the capability to do anything different.

by ChrisOfNoFame | 16th Mar 23, 12:49pm 1678924173

Not that simple.

Remember that NZ isn't the only place with a central bank playing at being god.

For example, the markets are currently suggest the US Fed will pause for now and certainly won't go as high.

by interesting1234 | 16th Mar 23, 6:16pm 1678943764

Remember that NZ isn't the only place with a central bank playing at being god.

That's like saying "it could be worse, we could be Nicaragua"

by Prickle | 16th Mar 23, 3:56pm 1678935406

Stabilise the OCR. No more hikes. Let’s review the landscape.

by GV 27 | 16th Mar 23, 11:45am 1678920335

If I understand this correctly; the economy is shrinking. But food is costing more and more and so are accommodation costs.

So in theory, the drop-off in the discretionary economy outside the basics must be dropped off massively to offset the increases in the spend required to cover the absolute bare essentials?

This does suggest a degree of knife-edge that is going unsaid - businesses will point to shrinking economies and employees will still be facing huge increases in living costs. How.... how do we marry these two very real situations up? Can we?

by Yvil | 16th Mar 23, 1:06pm 1678925161

That is the definition of stagflation (add higher unemployment yet to come)

by Rob Reid | 16th Mar 23, 1:17pm 1678925855

Stagflation in a nutshell, al la 70s.

And I'm raising my kids with a 1930s mindset, so they have expectations that can be met.

by Lanthanide | 16th Mar 23, 1:32pm 1678926768

Yes, 1970s were the last time that oil consumption per capita dropped.

by agnostium | 17th Mar 23, 8:13am 1678993981

Accommodation costs are falling.

by Yvil | 17th Mar 23, 10:54am 1679003690

I raised our room rates 10 - 20 % in November, occupancy hasn't been negatively affected at all.

by Jonny.Foe | 16th Mar 23, 11:48am 1678920492

A bit less than I expected. The economy has been sliding since October - median weekly earnings have been flat since then, net borrowing (new loans - repayments) went into reverse shortly afterwards, and Govt is now spending about the same as it taxes. Our economy runs on new borrowing and a bit of net Govt spending - this fuels consumer spending, which keeps people employed and spending. We are royally screwed now. Unemployment will pick up quickly - we are already in a stupidity driven doom loop created by dumb economic and monetary policy. Great work guys.

by ChrisOfNoFame | 16th Mar 23, 12:52pm 1678924332

Agreed.

The NZRB over-reacted to COVID and is now over-reacting to inflation.

by Von Metternich | 16th Mar 23, 12:13pm 1678921987

Yep, listening to a friend last night over cigarettes who has been applying for jobs and has noticed the cooling off in available work. I get the impression there is a big hesitancy on the part of most of the private sector.

by JimboJones | 16th Mar 23, 12:40pm 1678923617

Which is good news in a way. It won’t take much of a demand drop for inflation to magically disappear IMO.

by Von Metternich | 16th Mar 23, 1:06pm 1678925176

Sucks for him without a job though, destroys his self esteem and self worth. The human impact of unemployment is extremely brutal.

And no one is hiring in these conditions.

by Chaosinflesh | 16th Mar 23, 1:30pm 1678926641

I lived through that 2008-2013. Went from basically walking into any job I was suitably qualified for (1998-2007) to 120 applicants within 2 days for positions and recruiters finding any means necessary to not consider you for a job you already had years of experience in. Was not fun, and I feel for those who will face it this time around.

by HouseMouse | 16th Mar 23, 6:14pm 1678943662

Yep.

I kept my job in 2008, but was down to 4 day weeks (so 20% drop in income) for 9 months before I got another job. It’s not just unemployment that causes pain, but also loss of income, cancellation of bonuses etc etc

You learn a lot when you have been whacked in a recession. Hopefully you come out stronger and are better prepared for the next nasty recession, but not everyone does.

by interesting1234 | 16th Mar 23, 6:19pm 1678943983

You learn a lot when you have been whacked in a recession. Hopefully you come out stronger and are better prepared for the next nasty recession, but not everyone does.

Precisely. Be it living through war or conflict, or through a recession, humans need to reset and be reminded how life is tough and good times don't last forever. It feels like all the QE since 2020 made everything too good for people to accept that the party could ever end and the hangover will be severe.

by Rob Reid | 16th Mar 23, 10:10pm 1678957847

I've been made redundant 5 times since the early 80s.

Just in case anyone was wondering why I'm a DGM locked in a doom loop.

by Yvil | 16th Mar 23, 1:09pm 1678925343

We are still desperately needing staff and we can find any (good ones anyway)

by Yvil | 16th Mar 23, 12:57pm 1678924665

Well, that drop came sooner than even I expected.

Will the RB pause the OCR rises altogether now? I think so

by AdamJay1990 | 16th Mar 23, 1:39pm 1678927146

I would expect this will depend of inflation and employment data?

by interesting1234 | 16th Mar 23, 2:34pm 1678930499

Hmm good question. On one hand things may be starting, statistically at least, showing signs of tapering off and there is still a large percentage of mortgages to come off fixed rates across the year. Hike again and keep cooking cost of debt, or wait and let the inevitable come as it surely will. Given the level of inflation, the RBNZ mandate, and the level of incompetence within their highest of ranks, I'd be banking on them continuing the onslaught of OCR hikes.

by HouseMouse | 16th Mar 23, 6:17pm 1678943826

I don’t think they can justify that, at all. They will need to see inflation lower and unemployment higher.

We aren’t even technically in a recession yet.

by Sibrit | 16th Mar 23, 1:30pm 1678926652

But what does a 0.6% drop in GDP mean to us in our everyday lives?

by malamah | 16th Mar 23, 2:07pm 1678928845

Nothing and everything. For most, nothing - continue on what you're doing. This is why spending has been hard to rein in. But if you look to the future, potential job losses, different working conditions, lower quality of life in consumer terms, lower asset and stock prices, then you can plan for that today and make your own adjustments. Who knows what will happen or whether this is the recession we're all expecting. It will come and go.

by Sibrit | 16th Mar 23, 2:51pm 1678931468

The way things are, I'm far more likely to suffer from the higher cost of living or the increase in mortgage rates way before I'm affected by anything a lower GDP throws at me, but I hear what you say.

I wonder if politicians would be more considerate if they were not so insulated from the outcomes of their decisions?

by IT GUY | 16th Mar 23, 3:21pm 1678933290

Sort of, recessions tend to end when the underlying cause works itself out. That’s more interesting this time

by malamah | 16th Mar 23, 5:32pm 1678941150

IO posted a while back, predicting a period flip flopping between high and low inflation, high and low interest rates. If we ease our way out of this one, will we be right back here within a couple of years… definitely more interesting.

by WestieAJ | 16th Mar 23, 3:34pm 1678934081

Its going to get worse before it gets better. A record $10.5 billion of new mortgage commitments were advanced in March 2021. How many of those borrowers would have felt comfortable then taking the 1 year fixed deal of 2.25%. When interest rate rises were not even a twinkle in Adrian's eye. They are now staring down a refix next month at 6% +. Every 100k borrowed will be costing additional $72 per week in interest. 800k Auckland mortgage will consume $48000 just to service the interest. That is equivalent to first $63000 of a workers salary.

Apples to apples. Size of debts relative to income. These are equivalent times to the 20% mortgage rates of the 1980's. The question is whether inflation will be allowed to eat that debt today as it did back then.

by Esprit | 16th Mar 23, 3:47pm 1678934825

About your first statement, listening to the Brokenomics podcast last night the summary is "It's going to get worse before it gets worse..."

by Nzdan | 16th Mar 23, 5:23pm 1678940614

These are equivalent times to the 20% mortgage rates of the 1980's.

An equivalent mortgage today at 20% would be about $185k when compared with an $800k @ 2.25%. It'll take a lot more inflation to eat away at the $800k debt than the $185k debt. $120k household income, 1.5x vs 6.7x DTI. Income doubles to $240k. 0.7 vs 3.3. etc....

by nktokyo | 16th Mar 23, 4:13pm 1678936402

What would be interesting is if one of the Australian banks goes broke.

by IT GUY | 16th Mar 23, 8:44pm 1678952648

They are well regulated re asset liability duration matching, credit risk is the only way I could see this occuring, sure in a global depression all bets are off as that causes credit stress everywhere... RBA RBNZ will never let funding risk bring them down, they will print if they have to.... even credit risk they will just print..... so only a total collapse in asset prices WITH forced sales. read global depression IMHO and I am reasonably close to this industry....

by HouseMouse | 16th Mar 23, 4:36pm 1678937802

And you think GDP is weak now? Wait until the important residential construction sector has well and truly tanked, within a few months time.

by Rob Reid | 16th Mar 23, 10:50pm 1678960205

I chatted with a builder in a smallish firm tonight and asked how it's looking. He said his firm has enough work, but he's seeing plenty of other firms going under.

His impression is the bigger firms will be in bigger trouble.

by BeeBop | 17th Mar 23, 6:58am 1678989493

I am in the construction industry. Bigger businesses really struggling with orders to suppliers down by around 30%. Some more established smaller ones still going okay as OH lower. Developers more picky, price fixing is falling over (the trades openly 'price fix' on social media groups). Too many boys with toys on ego trips loading on debt for the glitzy cash. Good buildings are still getting good rates but assisting clients in efficiency and establishing relationships. I expect that this is a clean-out that is well overdue. Good prudent operators will survive. Although I see that those linked with K.O will get a rude awakening, seems from my inside sources that K.O. has been less 'diligent' on costs.

by interesting1234 | 17th Mar 23, 8:30am 1678995013

the trades openly 'price fix' on social media groups

Sounds like ComCom need to be made aware of this. Although they may not have the teeth to actually do anything about it, at least it would prove to the general public they have been rorted for a couple of years and perhaps give more momentum to the growing sentiment of frustration and anger at the decisions off the current gvernement and RBNZ

by AndrewRiddell5886 | 16th Mar 23, 6:04pm 1678943041

The whole neoliberal monetary policy setup causes this.

by AndyBBrown | 18th Mar 23, 6:01pm 1679115701

hard to know what to expect - very harsh or gentle slide.