What’s next for the NZ economy?

What’s next for the NZ economy?

What’s next for the NZ economy? | Insurance Business New Zealand


What’s next for the NZ economy?

Amid economic hurdles and uncertainties, 2023 is drawing to a close – but not before a pivotal general election


Katrina Shanks

Amid economic hurdles and uncertainties, 2023 is drawing to a close – but not before a pivotal general election in a few days. To gain an understanding of where things are sitting and the challenges that the governing party (or coalition) will have to face, we recently heard from leading independent economist Cameron Bagrie, as part of our “Bring in the Experts” webinar series.

As always, it was an insightful discussion: if you couldn’t attend, you can find a recording in the Members area of financialadvice.nz. In the meantime, I thought it would be helpful to share some takeaways, as New Zealand advisers starting thinking about what 2024 might look like.

Inflation beyond domestic policies

One of the crucial points that was raised was around inflation remaining a prominent concern. According to Cameron, despite optimism from certain quarters suggesting that inflation is turning a corner, it looks like the path to reigning in inflation is fraught with challenges well beyond our shores.

One of the contributing factors of inflation is the increase of commodity prices like oil, which are tied to international tensions. And with global power struggles continuing at a level that we haven’t been seeing for decades, it’s clear that New Zealand domestic policies and the Reserve Bank’s efforts can only go so far. 

See also  What are the disadvantages of a Medicare Advantage plan?

This unpredictability makes it hard for businesses to forecast costs, and for consumers to manage their budget. In the near future, it’s important that Kiwis prepare – as much as possible – for the ongoing rise in the cost-of-living which is partially outside of the domestic economy. This is where regular financial reviews can make all the difference. By sitting down for a comprehensive review, clients can strategise for the potential challenges ahead – with quality advice providing a roadmap.

Interest rates and the housing dilemma

There’s no denying that homeowners are feeling the pinch. In August, Westpac economists estimated that rising mortgage rates would cost an average household an extra $3,000 a year. And that’s while, at the same time, food has increased 7% and petrol 33% over the past year.

Predictions abound, though no-one really knows where interest rates might go next. What we do know is that migration numbers will likely put pressure on the already low housing stock, potentially pushing up prices. And according to Cameron, at the moment the Reserve Bank cannot allow the housing market to overheat. This means homeowners, for the time being, will have to keep enduring a combination of high interest rates and stagnant house prices.

Besides the obvious impact on household budgets, it’s important to remember that the property market is a key influence on households’ wealth and confidence. These factors could prompt many households to cut down on insurance costs, and that’s why it’s paramount for insurance advisers to stay abreast of their clients’ needs. They can help assess what’s necessary and what can be adjusted, ensuring families remain protected.

See also  How do cars end up at auction?

The labour market? Still resilient

While projections suggest an upward trend in unemployment and slowing wage growth, Cameron pointed out that the Reserve Bank need to see it manifest before deciding to cut the OCR.

This is a global issue: most central banks around the world agree that the labour market is extremely resilient. According to a recent article from The Economist (titled “Why aren’t more people being sacked?”), data from a sample of 16 OECD countries shows that employers have actually reduced open vacancies by more than 20% on average from their peak. However, this decline in vacancies is helping trim wage growth in some countries but not others. And most significantly, the 20% fall in vacancies hasn’t translated into a rise in unemployment.

In fact, the unemployment rate in the OECD held steady, breaking the historical rule. The problem at this stage is that, to defeat inflation, central banks must still cool the labour market. Only time will tell if – and when – they will succeed.

Why GDP growth projections don’t tell the full story

Here’s another interesting point that Cameron raised: while GDP growth for the next five years looks promising based on projections, the full story is more complex. Removing the influence of migration and population-based GDP growth, the economy is actually expected to contract in the next 12 months.

As Cameron highlighted, for the next Government, there might be tough decisions ahead concerning taxation and public services. And the potential changes, coupled with other economic pressures, will have real-world consequences for Kiwi households. As always, advisers will play a crucial role in providing clarity, direction, and, perhaps most importantly, reassurance.

See also  What does hospital indemnity mean?

We are in your corner

At Financial Advice NZ, we believe in the transformative power of quality advice. We are committed to supporting our members in their day-to-day endeavours as well as advocating for the financial services sector and promoting the value of quality advice. Would you like to learn more about our initiatives? Visit financialadvice.nz and don’t hesitate to get in touch. 

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!