“The recovery is back on,” heralds ANZ’s chief economist Sharon Zollner – albeit with a warning that “uncertainty is the new normal”
New Zealand’s economy is “back on track” after a lengthy downturn, ANZ’s chief economist says – but the good news comes with a caveat that “uncertainty is the new normal”.
Speaking at a recent event held by Publicis Groupe for business and marketing leaders in central Auckland, Sharon Zollner told attendees that Kiwis still “don’t really feel their fate is entirely in their own hands” amid “a pretty volatile global environment”.
But with discretionary spending on the rise, she says it seems New Zealand businesses and households have decided to “just get on with it” in the acknowledgement that “this is the world today”.
“The recovery is back on, and left well enough alone will be fine,” said Zollner. “I just have some concerns that we may not be left well enough alone.”
Zollner’s comments came in a conversation with Herald NOW Business host Garth Bray at the Publicis event, held in partnership with NZME. The pair discussed New Zealand’s economic outlook, market trends, inflation pressures, and the forces shaping business decisions.
Top of mind was the ongoing Middle East conflict, the effects of which have pushed up fuel, fertiliser and transport prices, contributing to inflation both here and abroad.
Zollner said the hit to New Zealand’s GDP in the recession looks “pretty similar” to what t the wake of the 2008 global financial crisis (GFC), but that data was now clearly signalling a recovery – though she acknowledged pockets of the economy were bouncing back better than others.
The retail sector had endured “a pretty torrid time”, she said, while small businesses more generally continued to struggle, including with IRD debts. Beer breweries and wineries were performing poorly too, their markets shrinking as young people opted for alternatives.
Elsewhere, though, the economy had bounced back well. Winners include farmers, with meat prices booming, dairy prices below peak levels but “still doing really well”, and the apple and kiwifruit industries thriving.
Agriculture and tourism have been “a real success story”, Zollner added. Heavily exposed to both industries, the South Island has been largely enjoying “happy days” – but even the North Island is “in much better shape” compared with 18 months ago.
“[For] large businesses, and in commercial property and agriculture, bad loans have all actually been falling for the last couple of years,” said Zollner. “So in that regard, we have a pretty clean slate to go again and invest and employ if we have the confidence.”
A lot of focus right now is on migration, Zollner said, particularly net outflows to Australia amid their strong labour market. While it’s not unusual to see people coming and going from New Zealand, she says it’s “getting harder and harder” to stop Kiwis moving across the Tasman.
“The minerals boom since 2008 has made the Australian fiscal position pretty good,” she said.
“They’ve been able to recycle that into infrastructure and education and healthcare and all these nice things that boost productivity – and their real wages are pulling away from ours, so it’s not easy.
“Of course, we also had changes that made it easier for New Zealanders to move to Australia and settle down there. But it’s become a bit of a political issue in Australia now, the strong inward migration, so that door may start to close again.”
Another notable market trend – or rather, the lack of one – was house prices, which Zollner said “have been going nowhere” amid a soft market. She expects that to continue.
“Part of the story is that we have actually kept building quite a lot of houses, a lot of townhouses – that’s the real difference between the trough in residential construction after the GFC and the trough now,” she said.
“But despite the higher activity through the slowdown versus last time the drop from peak to trough has still been quite ferocious because we had the most insane construction boom ever – so that explains the pain.”
While houses remain significantly less affordable than the early 1990s when “young people could afford to buy them”, it is now much easier than it was at the peak of the market, she says.
Houses are now just 2.4 times more expensive relative to income than they were in the early ‘90s, compared to a high of 3.5 times, “so we’ll take the win,” says Zollner.
“I wouldn’t say we’ve solved housing affordability, but to undo the recent damage in such an orderly way is an absolute win,” she explains.
“The fact that the Reserve Bank’s Financial Stability Report is boring: [we] dodged a bullet there, people. I mean, house prices literally went exponential – they went up 50% in two years from levels that people already thought were too high. Nobody does that on purpose, that was not the plan.”
Zollner said overall, she’s “quite optimistic” about New Zealand’s economic future.
“Certainly in a cyclical sense, I think the building blocks are in place for a recovery; structurally, obviously, we’ve got some issues – our productivity growth is pretty poor,” she said.
“But I do think being really, really good at growing necessities, growing food, is a pretty good bet in this world. You look at the new food pyramid and it’s high proteins, healthy fats – and we’re like, ‘yeah, bring it on, we can help you with that’.”
Listen to ANZ chief economist Sharon Zollner’s full conversation with Garth Bray here: