Thursday, 18 August 2022
Meet the JournalistsPremiumAucklandWellingtonCanterbury/South Island
CrimePoliticsHealthEducationEnvironment and ClimateNZ Herald FocusData journalismKāhu, Māori ContentPropertyWeather
Small BusinessOpinionPersonal FinanceEconomyBusiness TravelCapital Markets
Politics
Premium SportRugbyCommonwealth GamesCricketRacingNetballBoxingLeagueFootballSuper RugbyAthleticsBasketballMotorsportTennisCyclingGolfAmerican SportsHockeyUFC
NZH Local FocusThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay of Plenty TimesHawke's Bay TodayRotorua Daily PostWhanganui ChronicleStratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu Courier
Covid-19
Te Rito
Te Rito
OneRoof PropertyCommercial Property
Open JusticeVideoPodcastsTechnologyWorldOpinion
SpyTVMoviesBooksMusicCultureSideswipeCompetitions
Fashion & BeautyFood & DrinkRoyalsRelationshipsWellbeingPets & AnimalsVivaCanvasEat WellCompetitionsRestaurants & Menus
New Zealand TravelAustralia TravelInternational Travel
Our Green FutureRuralOneRoof Property
Career AdviceCorporate News
Driven MotoringPhotos
SudokuCodecrackerCrosswordsWordsearchDaily quizzes
Classifieds
KaitaiaWhangareiDargavilleAucklandThamesTaurangaHamiltonWhakataneRotoruaTokoroaTe KuitiTaumarunuiTaupoGisborneNew PlymouthNapierHastingsDannevirkeWhanganuiPalmerston NorthLevinParaparaumuMastertonWellingtonMotuekaNelsonBlenheimWestportReeftonKaikouraGreymouthHokitikaChristchurchAshburtonTimaruWanakaOamaruQueenstownDunedinGoreInvercargill
NZ HeraldThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay Of Plenty TimesRotorua Daily PostHawke's Bay TodayWhanganui ChronicleThe Stratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu CourierVivaEat WellOneRoofDriven MotoringThe CountryPhoto SalesNZ Herald InsightsWatchMeGrabOneiHeart RadioRestaurant Hub

Advertisement

Advertise with NZME.
Business

Editorial: Big cracks starting to show in economy, Financial Stability Report and others show

5 May, 2022 05:00 PM3 minutes to read
Reserve Bank Governor Adrian Orr presents his Financial Stability Report (FSR ) for New Zealand for 2022 at Te Putea Matua Reserve Bank of New Zealand in Wellington. Picture / Supplied

Reserve Bank Governor Adrian Orr presents his Financial Stability Report (FSR ) for New Zealand for 2022 at Te Putea Matua Reserve Bank of New Zealand in Wellington. Picture / Supplied

NZ Herald

EDITORIAL:

The Reserve Bank's latest Financial Stability Report provides confidence that our financial system can cope with major shocks, including a significant house price correction.

But dig deeper into the report and there is plenty to be concerned about in the context of higher interest rates, inflationary pressures and a slowing economy.

The Central Bank this week highlighted how a 30 per cent fall in house prices would send about 10 per cent of home loans into negative equity territory.

While it is not forecasting that specifically, the report did say that a sharp correction remains a "plausible outcome" and recent buyers would be most vulnerable.

The Reserve Bank also noted that many businesses are facing considerable cost pressures as well as effects of the Omicron outbreak.

Some of those businesses will presumably have mortgages secured against their owners' homes.

"Similar to households, debt-servicing costs for businesses are increasing with interest rates," the report said.

Advertisement

Advertise with NZME.

While this on its own may not cause financial strain, noting the low starting point of interest rates and general deleveraging by businesses over the past few years, when combined with other cost pressures and reduced spending, some businesses were likely to become stressed, it said.

"In particular, we are monitoring the construction and commercial property industries, given the potential for further stress to emerge over the coming year."

Related articles

Politics

Orr clashes with MPs over inflation

05 May 02:45 AM
Business

Brian Fallow: When to spend and when to save

05 May 05:00 PM
Business

Jane Clifton: Inflation monster menaces Government's pet projects

06 May 12:00 AM
New Zealand

Letters: Cycling into the future

05 May 05:00 PM

The Reserve Bank's report would have already been printed when earlier in the week news broke of the collapse of a sizeable commercial building business in Wellington.

Armstrong Downes Commercial went into liquidation on Monday, surprising some industry experts.

"It happened fast and it's a reflection of the unstable market. Everyone is busy, but the pressures at the financial end to make sure these things are still delivering," one property developer told the Herald.

There are fears this could be the first major casualty as the market draws back from development projects.

Read More

  • Larger house price falls remain possibility, Reserve ...
  • Dairy's risk to NZ financial system 'has diminished' ...
  • Double hike to OCR signals RBNZ ready to move faster ...
  • Mortgage rates set to rise further after RBNZ lifts ...

Two other reports out this week also underline the Reserve Bank's caution.

First came new data from credit agency Centrix, which showed demand for loans and credit cards had fallen sharply while those getting behind on their payments for existing debt is on the rise.

Advertisement

Advertise with NZME.

This was quite predictable given the aforementioned cost pressures Kiwis are experiencing.

But the extent of the pullback in credit card demand – down 35 per cent - is especially telling. Some of that can be attributable to the rise of buy now, pay later, but clearly inflation and interest rates are really starting to curb consumer spending.

In fact, Centrix's managing director said he'd never seen demand for credit cards fall so fast.

The second report came from Auckland's largest real estate agency, Barfoot & Thompson, which displayed a dramatic decline in sales volumes in April, with selling prices also dropping.

The agency sold just 615 residential properties in April, down 44 per cent from a year ago. Aside from April 2020, when New Zealand was in a Covid-19 lockdown, it was the lowest number for that month since 2008.

With the Reserve Bank forced to raise the official cash rate to try and curb inflation, recent buyers could face a stressful year ahead.

At least the labour market is tight and unemployment at record lows. But the patterns emerging indicate some big cracks in the economy right now.

Advertisement

Advertise with NZME.

Latest from Business

BusinessUpdated

International travel rebound: Auckland Airport trims losses

17 Aug 09:16 PM
Business

Skellerup notches up another record profit, lifts dividend

17 Aug 09:03 PM
Business

Kiwibank profit 'best result in 20 years'

17 Aug 09:02 PM
Premium
BusinessUpdated

Jarden Sydney office behaviour complaints reported

17 Aug 08:46 PM
Premium
Business

Jarden Brief: Krispy Kreme's stale stock market day

17 Aug 08:17 PM

Most Popular

Wet, warm and windy: Auckland and Northland battered by heavy rain overnight
New Zealand

Wet, warm and windy: Auckland and Northland battered by heavy rain overnight

17 Aug 09:25 PM
Nelson to New York: TV's David Lomas and an emotional reunion of long-lost father and son
Entertainment

Nelson to New York: TV's David Lomas and an emotional reunion of long-lost father and son

17 Aug 08:59 PM
Live: 'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line
New Zealand

Live: 'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line

17 Aug 08:33 PM

Advertisement

Advertise with NZME.
About NZMEHelp & SupportContact UsSubscribe to NZ HeraldHouse Rules
Manage Your Print SubscriptionNZ Herald E-EditionAdvertise with NZMEBook Your AdPrivacy Policy
Terms of UseCompetition Terms & ConditionsSubscriptions Terms & Conditions
© Copyright 2022 NZME Publishing Limited
TOP