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Home›New Zealand›Ardern watches helplessly as New Zealand rushes into recession

Ardern watches helplessly as New Zealand rushes into recession

By Lisa Wilkerson
July 4, 2022
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The latest batch of consumer confidence reports for New Zealand show Kiwis remain extremely depressed due to soaring inflation and interest rates.

The ANZ-Roy Morgan Consumer Confidence Index fell 1.8 points in June to 80.5, slightly above April’s record low:

Confidence firmly stuck at recessionary levels.

The ANZ-Roy Morgan Composite Confidence Gauge also points firmly to recession:

Households are dealing with a lot right now: incomes that are not keeping up with inflation, rising interest rates, falling prices for homes and other assets, and the persistence of COVID and the pandemic. general economic uncertainty…

Taken together, this data sends sobering signals about the outlook. In particular, retail spending could soon find itself on the ropes if consumers act on their stated answers to whether now is a good time to buy a major household item. So far, spending is holding up (Figure 2), but it’s still a bad sign for retailers…

Good time to buy a major household item

Our composite confidence indicator combines the lagged expectations and intentions of the business outlook with consumer sentiment (Figure 4). Still at recessionary levels, it continues to highlight downside risks to the outlook…

Composite Trust Index

Westpac McDermott Miller’s latest consumer confidence survey also recorded the worst kiwifruit consumer confidence reading in records dating back to the 1980s, alongside the lowest “The right time to buy a major household item » recorded result, which is the best indicator of household consumption.

New Zealand’s poor consumer confidence is understandable. It is also likely to get even worse.

Like everyone around the world, Kiwis are experiencing a spike in the cost of living due to global supply shocks. These shocks drove up inflation, prompting the Reserve Bank of New Zealand (RBNZ) to aggressively raise interest rates.

New Zealand’s official exchange rate (OCR) rose from 0.25% in August to 2.0% currently, pushing fixed mortgage rates (which include the majority of mortgages) to around 6 %.

Worse still, RBNZ ‘way ahead’ indications have the OCR nearly doubling to 3.9% by June 2023, which would mean the tightening cycle is only halfway. -journey.

As the majority of New Zealanders have fixed rate mortgages of less than two years, most of those who took mortgages at lower rates during the pandemic have not yet been affected by the OCR increases. But they know judgment day is coming and they will soon be forced to refinance at double mortgage rates, which is why the Kiwis are so depressed.

Related to the above, house prices have fallen sharply in response to rate hikes, down 9.2% from their peak in November 2021. The stock of unsold homes has also soared as demand for buyers collapsed. The housing correction is certain to worsen as monetary policy tightens, with New Zealand facing its biggest house price correction in generations.

The result is that Kiwi’s main asset is plunging in value at the same time its cost of living (including mortgage costs) is skyrocketing. In a nation so obsessed with housing, this is a recipe for dissatisfaction and pessimism.

Finally, ANZ’s latest business outlook survey showed residential construction intentions slumped, falling to -50 in May from -37 in April. This, in turn, indicates a marked slowdown in construction activity.

The timing couldn’t be worse for the incumbent Ardern Labor government, whose voter support has already collapsed since the RBNZ began its rate hike cycle in October:

New Zealand primary vote

Kiwis no longer like Jacinda Ardern’s Labour.

As noted above, Labor’s vote plummeted 45.5% just before the RBNZ’s first rate hike to 31.5% in May – a massive drop of 14%.

With the next New Zealand election slated for late 2023 and Kiwis facing soaring mortgage costs, falling property prices and a potential recession, Jacinda Ardern faces an all but certain election defeat. Worse, it can’t do much about it, given that the RBNZ holds the interest rate leverage.

Unconventional economist

Leith van Onselen is Chief Economist at MB Fund and MB Super. He is also chief economist and co-founder of MacroBusiness.
Leith previously worked at Australian Treasury, Victorian Treasury and Goldman Sachs.

Unconventional economist
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