New Zealand's reopening plan will come as a relief for many. Photo / Michael Craig
What's in store for the economy now that the Government has laid out a plan for a staged opening of New Zealand's borders?
So far, consumer price and labour data has pointed to a stronger-than-expected economy.
Last year's annual inflation rate of 5.9 per cent means higher interest rates are on the way.
And higher interest rates are likely to come as a shock to those who have only experienced rate falls over the last six or seven years.
A sea change in the way central banks are reacting to the inflation challenge is creating uncertainty in the financial markets, as investors are forced to weigh up the likely impact of rising interest rates on asset prices.
The resulting market volatility means investors and borrowers alike will have plenty to think about in 2022.
In the latest episode of the investment podcast Continuous Disclosure, Jamie Gray talks to Kiwibank chief economist Jarrod Kerr about the reopening, and the interplay between interest rates, asset prices and equity markets.
Kerr says New Zealand's reopening plan will come as a relief for many.
"We have now got some hard dates that people and business can work to.
"We will have students coming in here from April and visa workers coming through, and then hopefully we will be fully open by October.
"It really does shine some light on the end of the tunnel for the tourism industry and education.
"Education has been hit particularly hard - our universities - so getting their students in and getting workers in to help in horticulture is all very positive and something that we have wanted to see for a while."
The reopening plan comes as credit conditions are tightening significantly.
"The housing market is under significant stress at the moment. Credit Contracts and Consumer Finance Act (CCCFA) changes, LVR changes and the threat of DTIs (debt to income ratios) has played on the housing market," he said.
"That (credit) supply shock is certainly impacting on the market right now. And interest rates are rising.
"You have people like me running around saying that they are rising and are going to keep rising.
"If you factor that into a decision when you are buying a house at mortgage rates that could be one, two or three per cent higher in a year or two's time, that is playing on the housing market as well."
Kerr said rising interest rates could come as a shock to people who a have only known interest rates to decline over the last six or seven years.
"So we are in a situation where interest rates are rising and people who took out mortgages last year at 2.1 or 2.2 per cent are suddenly waking up to mortgage rates of 3.5 or 4 per cent."
The prospect of tighter monetary conditions - coming at the tail end of the lowest interest rates in history - was making for volatile markets.
"We have seen a lot of hot money go into tech but also crypto assets and we have over the last month or so seen a sharp correction in those markets and in more value stocks."
There were signs of panic emerging as investors exited some of their riskier assets.
"Do you try and catch the falling knife here? I think if you took a longer view, I think now would be a good buying opportunity.
"It's times like these where those who are steadfast and have a long-term view and a long term strategy for investment can take advantage of these bouts of panic.
"There will be some stocks out there that are cheap, so this is the time to take a look."
Kerr said volatility of financial markets reflected the degree of uncertainty.
Domestically, the economic data looked quite strong.
"The other side of the coin is that central banks around the world are tightening and we are coming to the end of easy money, so that is being factored in to equity markets at the moment and I think we will continue to see volatility over the year ahead.
"But if I was a betting man, I would say that equity markets are going to be ending the year higher than where they started," Kerr said.
"It's just going to be a choppy road ahead."
Continuous Disclosure is available on IHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday.
You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts or on IHeartRadio.
The Giles family remains deeply involved, with Graeme's son and nephew in key roles.
