Looking for something other than the election to worry about? You can take your pick.
Looking for something other than the election to worry about? You can take your pick.
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
Attempting to write anything about the economy without acknowledging that political weight bearing down on us would be a case of ignoring the elephant in the room.
But at the moment it feels like it’s all elephant, all the time. Surely we canpeek between it’s legs and have a look at what else is going on in the world?
So here’s some serious issues, worthy of worrying about, that no political candidate can simply promise away.
China
The economic slide that dominated business headlines this year hasn’t been so pronounced in the past few weeks. We’ve seen Chinese demand for dairy products stabilise.
But the threat of a meltdown, particularly in the property sector, remains very real. That means the threat to our economy is still alive and must be top of mind for the Reserve Bank and the incoming government when they make policy plans.
Even if China gets through this cycle without high economic drama, it’s not going to be the same kind of growth engine for New Zealand that it has been for the past two decades.
If there’s an upside to the current malaise it’s the incentive it creates for New Zealand businesses to diversify and chase new markets.
Oil prices
Brent crude oil (New Zealand’s favourite variety) was trading above US$97 last week - the highest it’s been since last November. Back then, consumers were buffered by government tax breaks, now long gone. With the Saudis and Russians determined to put the squeeze on supply, analysts have it heading back above US$100 before Christmas.
What does that mean for Kiwis? Pump prices at $3.50 a litre? Who knows, but it won’t be good for our back pockets and won’t be good for efforts to crush inflation pressure in the economy.
Of course, if we step back and remind ourselves that the world really needs to kick its addiction to oil maybe we should be cheering on higher prices, which means more incentive to switch to sustainable alternatives.
That’s probably a small comfort to those grappling with the cost-of-living pain right now. But it is a tidy segue to another big economic headwind.
The climate
Ok, climate change is a constant worry for many of us. But even if you’re ambivalent about what’s coming long term, there is plenty to worry about in the months ahead.
El Nino conditions are a literal headwind for the economy. They are a dry westerly that typically result in drought in eastern parts of the country.
The economic impacts of those droughts have been well-studied over the years.
The RBNZ found the contraction caused by the 1997/98 event subtracted 0.7 percentage points from GDP from the March quarter of 1997 to the September quarter of 1998.
Work done by NZIER economists for the Ministry of Primary Industries estimated the 2019/2020 event would cost the economy between $600m and $760m of GDP - or about a 0.5 per cent.
Throw that on a bonfire of high interest rates and persistent inflation and there’s not much upside. It could be a chance for waterlogged Auckland to dry out perhaps - although it’s galling to think that a lack of decent water storage means we might be back on restrictions so soon after a year of floods.
US politics
The fragile nature of democracy in the world’s largest economy remains equal parts fascinating and horrifying.
There’s the ongoing popularity of Donald Trump despite his facing a web of court cases that you need a whiteboard to follow. There’s the prospect of another government shutdown looming and President Joe Biden is still deeply unpopular despite some pretty impressive economic progress.
Inflation is back near 3 per cent, employment and GDP growth are still strong and a chorus of economists and business leaders has started calling for a soft landing.
It could be that the US economy is too strong, though. The US Federal Reserve isn’t happy and threats to keep interest rates higher for longer are rattling markets.
Former US President Donald Trump remains popular despite a slew of court cases against him. Photo / AP
Bond yields
If you’ve got a mortgage you’ve probably noticed that bank rates keep rising despite the Reserve Bank having put Official Cash Rate moves on hold.
The Fed’s tough talk has seen bond markets surge, with yields pushing up to 20-year highs, raising the international cost of borrowing.
Economists also seem to think we’ll need one more OCR hike before Christmas to ensure we have inflation beaten. But at the moment, wholesale markets are running so hot that might not make too much difference by the time it arrives.
Share market
Don’t check your KiwiSaver balance right now. It’s been an ugly month for Wall Street, with the hawkish Fed rattling equity investors as well.
Actually, it’s been an ugly year on the local NZX50. It has never managed to regain the peaks it hit during the pandemic. The NZX-50 is off 8 per cent since its most recent peak in February.
Thankfully, most of us aren’t too heavily exposed to the local market when it comes to KiwiSaver. Here’s hoping Wall Street settles and history doesn’t repeat with the kind of black days that October delivered in 1929 or 1987.
The All Blacks
Speaking of black days ...
Even though they got past Italy in emphatic fashion yesterday, there is still plenty to worry about. The trouble with following the All Blacks is that expectations are so high there always seems to be more worry than joy around the World Cups. At least the master plan looked like it was finally falling into place against Italy - it will need to if we’re going to get past Ireland in the quarter-finals.
Still, if it all goes wrong at least we can tune back into the election campaign for some distracting entertainment.
