2023 is going to hit New Zealanders hard.
Since the 2011 Christchurch earthquakes New Zealand has been beset by a new major crisis about once every two years. 2022 was our year off and get ready we are in for a strange and hard recession. It won’t likely be one in the usual form definition of two successive quarters of negative GDP growth, or even in a massive surge in unemployment. No, it will be in the price of everything.
Our Reserve Bank is set to deliver an unprecedented .75 raise in the base interest rate.
That is on top of the rises already pushing through into mortgages, rents, and everything else.
The United Kingdom government fresh into power has hiked tax rates and its public are facing an exceedingly fast corrosion of their spending power as inflation accelerates.
Central banks in Australia, United States, Europe and many others have also raised their base rates fast.
Deusche Bank has also forecast that Australia will enter recession next year.
This is an alarm bell for serious economic turbulence that New Zealand will not be able to shelter from. Deusche Bank’s analysis says that “We expect Australia’s unemployment rate to end 2023 at 4.5%, that is, one percentage point higher than the current unemployment rate at 3.5%.”
That diverges sharply from the Australian Reserve Bank’s forecast of 3.7% for end 2023.
Here is the first problem. When central bankers work this hard to slow the economy down, they often end up tipping into outright reverse.
The really bright stars on the New Zealand horizon are several. Our neighbour Indonesia is doing extremely well selling coal to the world and of course to power New Zealand.
The United States economy grew faster in the July-September quarter though we don’t yet know how bad the tech implosion in California will be. The United States economy, by some measure still the largest and most dynamic, is doing fine.
The other good news is that the entities this government taxes to make the money to redistribute to citizens in the form of subsidies and services, well they are fine. Employment is up. Bank profits are up. Energy company profits are up. Agricultural profits are up. Tourism related companies are up. Over the past three years New Zealand has relied more and more on its government to redistribute this awesome windfall tax income to keep people fed, employed, and otherwise functioning as a society. Minister Robertson is one of the safest pairs of hands in the world, and will continue to be so. There is no one in National or Act that gets close to understanding the scale of 2023’s impact.
The other good news is you can’t get a rental vehicle in Queenstown or Christchurch, all the flights are full, and there’s barely a bed to spare. Tourism is back. New Zealand’s core economic constraint is not enough workers, and that is our powerful protection against 2023’s global recession.
And now for the darkness. Which is pretty dark.
New Zealand’s primary private investment is in domestic real estate, and its average value has tanked 20% and continues to fall in the worst downhill roll since the 1990s and can’t yet see a floor to it. That’s most of our nest eggs, if one if fortunate enough to own one.
New Zealand’s savings in the form of Kiwisaver are tanking. Official advice on Sorted is “everyone keep calm, carry on with your long term investing.”
This year NZSuperFund lost $3.3 billion.
So there’s not a lot of calm evident in international share markets and not much “everyone keep calm” justified.
China’s economy is rapidly decelerating. Though our exports to China are remarkably recession-resilient it will be a test to see if our main exporters are nimble enough to switch markets. It’s just not going to be like it was pre-COVID.
The pressures on the New Zealand economy will continue from the Russian invasion of Ukraine which is set for at very least all of 2023. According to the NZ Treasury September 2022 analysis:
“…the invasion will reinforce a number of transitions in the global economy already underway from existing pressures on globalisation including China/US dynamics and the COVID-19 pandemic, alongside long-standing but increasingly time dependent challenges such as climate change and the need for a “green transition”.
New Zealand has no refining capacity and is one of the most car reliant countries on earth. About 40% of its energy in total comes from imported petroleum. We are only in the start of diesel-driven grocery price rises.
New Zealand’s government is getting to the limits of what it can do to shelter New Zealanders from the impacts of this impending hardship.
We are once again facing forces larger than the powers of our political order to cope with.
The question is not whether house price crashes, rent increases and food and fuel inflation will continue to hurt us.
The question for 2023 to prepare for is where else are we going to be hit and hit hard?