The economy is anticipated to be the election-defining issue of 2023.
Treasury and the Reserve Bank have both forecast the country will be heading toward tougher times, in line with then the International Monetary Fund warning that a third of the world should brace for a recessionary period.
This all happens at a time when house prices are sliding, Kiwis are preparing for a mortgage shock and the cost of living crisis continues to squeeze wallets.
ANZ chief economist Sharon Zollner and Infometrics principal economist (and incoming CEO) Brad Olsen joined The Front Page podcast to discuss how long and hard the recession might be and which New Zealanders are likely to face the brunt of the blow.
“Expectations from just about everyone is that it’s not going to feel nice,” says Olsen.
“It’s certainly going to be a real recession, but there’s a hope that it won’t be as hard of a hit as the global financial crisis. And realistically, that’s because we’ve been doing so much in the economy that coming off those heated highs in 2021 and 2022, anything is going to feel recessionary.
“The economy’s been running too hot. We are boiling over and losing too much out of the sides. So, if we can turn the temperature down just a bit and get down to a simmer rather than a rolling boil, that’s the expectation of where the recession could lead.”
Alongside that recessionary threat, New Zealanders also face the prospect of a mortgage shock as they re-fix their expiring mortgages at much higher rates. Zollner says that rising incomes over the last 12 months will temper that blow to some degree, but that some households will still take a significant hit.
“The household debt servicing burden – the proportion of household income being spent on mortgages – troughed at around five per cent and it’s heading upwards. On our forecasts, it’ll go to around 11 per cent in a year or two. So it’s more than doubling.” This is still lower than the 16 per cent we saw in 2008, but some homes will be affected worse than others.
“These interest rate rises are very painful for those highly indebted households.”
So how will New Zealanders make it through this tough period? Is it time to consider wealth taxes to ensure a fairer distribution of wealth across society? And should we be holding on to our jobs tightly amid this period of uncertainty?
Listen to the full episode of The Front Page podcast to hear Zollner and Olsen weigh in on all the big economic questions hanging over the nation.