It feels like we’ve been waiting forever for this economic downturn.
I just want to get this great economic rebalancing act over with.
Inflation is too high. So I know economic activity needs to contract. Maybe it’s a recession maybe not but, either way, we need to spend less and businesses need to do less.
The economy needs a time-out.
The Reserve Bank has told us what’s coming. So, alright, let’s get on the naughty step and take our punishment so we can get back out in the playground.
Unfortunately, there’s little sign of that happening yet.
Yes, the cost of living is high and that’s making people feel like times are tough - particularly older people on fixed incomes - but, unfortunately, we are still very much at the beginning of this cycle.
Markets celebrated too early, soaring on bets that they could see the finish line for inflation and interest rate hikes.
Consumers had other ideas.
The reality is that even with fixed rates nearing their peak and the Reserve Bank nearing the end of its tightening cycle, we’re still stuck at the start-line of the hard part of this race.
All around the world, strength in the employment market and rising wages are keeping economies buoyant.
China’s economy has surged back - complicating things with a stimulatory boost.
Recession forecasts are being pushed out further into 2024 or - in the case of the latest Reserve Bank forecasts - expectations about the length of time in recession are being shortened.
Data released by credit agency Centrix last week showed the percentage of Kiwis getting behind on their mortgage payments is soaring and has reached a three-year high.
It’s the largest number since April 2020, with approximately 18,400 mortgage accounts past due.
At first glance, it seems like this might be the start of the downturn.
But a three-year high isn’t particularly notable.
We are actually just back to the levels of mortgage payment distress that we had shortly before the pandemic hit.
As a percentage of mortgages, that’s just 1.22 per cent in arrears - a lower level than we had through 2017, 2018 and 2019.
In January 2017, the percentage of mortgages in arrears was 1.58 per cent.
In hindsight that was a pretty benign economic period.
So we clearly have some way to go before we are at levels of debt-default that could be called historically significant.
To put it bluntly - the real mortgage pain hasn’t even started yet.
The impact of monetary policy on the average punter takes a long time to transmit in this country because we have a habit of fixing rates for between one and five years.
In Australia, just 20 to 30 per cent of homeowners fix their mortgage - the rest just float up and down with the market.
As of December 2022, the average rate (fixed and floating) being paid by mortgage-holders was only 4.35 per cent, according to Reserve Bank figures.
You could make the case that we’re just starting to see normal service resuming.
The percentage of mortgage arrears actually fell to very low levels (below 1 per cent) during the pandemic.
But of course, we know the pain is coming because the Reserve Bank won’t let up until it does.
That average rate being paid by mortgage holders will be climbing every day as more reach the end of our last term.
The rates that Kiwis are refixing at currently sit at between 6.5 and 7 per cent.
They aren’t expected to rise much higher, because the market has priced in a forecast peak for the OCR later this year.
But we can expect the Reserve Bank to hold the OCR there until most of us are forced to pay rates close to 7 per cent.
And if for some reason - like we still have jobs and decide to ride our overdrafts and keep spending through this cycle - they could still decide to hike further than markets currently expect.
What will matter is jobs. And it’s increasingly hard to see employment falling off a cliff in the short or medium term.
That’s particularly the case now we face renewed demand in the construction sector post-cyclone.
Stronger-than-expected employment data is what has spooked US markets and pushed up expectations of higher interest rates there too.
Consumers here are actually downbeat - in theory. They have been for a while.
The latest ANZ Consumer Confidence survey showed that the proportion of people who believe it is a good time to buy a major household item fell 7 points to ‑35 per cent, the lowest level since the 2020 lockdown.
That’s an important economic indicator. What consumers are that the cost of living is high so they probably won’t be upgrading the telly this year.
But overall confidence was lower in December than it is now. But it could best be described as “bouncing round the bottom”, said ANZ chief economist Sharon Zollner.
It seems like we’re all braced for this downturn. We’ve read the newspaper headlines (or written them in my case).
It just hasn’t arrived yet.
Well, stay braced I guess. Something’s got to give.