Editorial: Why we need to look past a ‘survive till 25′ mentality

Many businesses are just holding on in the hope that the economy will look better in 2025. Photo / 123rf

Editorial

EDITORIAL

“Hope is a dangerous thing,” warns the old prisoner Red in Stephen King’s Shawshank Redemption.

There may be a lesson for New Zealand businesses in those words. Expectations that things can only get better after more than a year of recession aren’t unfounded.

But there is risk in putting too much weight on the now ubiquitous catch-phrase: “Survive till ‘25″.

Then what? Will we emerge from the summer break into a brave new world of economic growth?

There’s no question that the baseline economic numbers are starting to improve. Inflation has fallen back into the Reserve Bank’s target band below 3% and interest rates are starting to come back to earth.

In fact, we can expect more rate relief next Wednesday with the RBNZ widely expected to cut the Official Cash Rate by another 50 basis points to 4.25%.

But for many people struggling with debt, those rates will still be high. And for others on fixed rates, the relief may still be months away.

Business failures continue to dominate headlines and unemployment is expected to keep rising for several more months.

The latest blow - the likely closure of the Kinleith paper plant - threatens to cost some 230 jobs, with serious knock-on effects on the economy in the South Waikato region.

With such uncertainty hanging over people’s jobs, just how quickly can we expect the economy to recover in the coming year?

ANZ this week released its quarterly economic outlook and it was nominally good news.

A faster withdrawal of monetary restriction by the RBNZ is expected to have economic activity recovering faster than previously expected, ANZ economists said.

“Lower interest rates, house price falls petering out, easier credit conditions, a softish NZD and more have all contributed to easing financial conditions that suggest better times ahead,” the report says.

But a closer look reveals the faster recovery really doesn’t kick in until late 2025, by ANZ’s calculations at least.

In fact, ANZ economists have revised down their near-term GDP forecast marginally, even though they point out that the RBNZ’s big rate cuts have “laid the path for a faster recovery from the second half of 2025”.

ANZ forecasts full-year real GDP to come in at a recessionary -1% for 2024, followed by 1.1% growth in 2025. That suggests the rebound for the first half of next year will be a flat one.

Much better news is the ANZ forecast for a healthy-looking 3% growth in 2026.

Of course (as The Shawshank Redemption goes on to conclude) hope can also be crucial to survival. We need to believe there is light at the end of the tunnel or we might stop digging.

There is a chance the economy will outperform these forecasts. This dairy season looks promising, with good export prices and production volumes potentially bringing in an extra $4 billion in foreign exchange, according to ASB.

The Government may yet have more policy moves up its sleeve to boost confidence. We await an announcement about changes to foreign investment rules.

But all of these things will take time.

Meanwhile, those looking to financially thrive in 2025 will need to keep looking to their own strategies and decisions.