– Coffee baron sells home to US buyer: ‘You\u2019ve got to let go of some stuff’<\/a><\/p>\nHe said businesses were talking about uncertainty, over and over: \u201cUncertainty around the war, uncertainty around the election, uncertainty around a lot of things and uncertainty kills growth immediately.\u201d<\/p>\n
Other banks were calling for a July OCR hike, but \u201cwe fiercely disagree with that. We think that would make matters worse, but it is what it is. If the Reserve Bank wants to be preemptive, then they hike in July. If they want to be a bit more reactive, then they wait.\u201d <\/p>\n
The $50 a week to selected households promised in the Budget was the right thing to do, Kerr said, but many other households were missing out, and the money did not fix the fact that there had been a cost-of-living crisis for over three years. <\/p>\n
He wanted the Budget to prioritise targeted spending, with a stronger focus on capital investment in infrastructure and initiatives that would stimulate economic growth and build a more resilient, flexible economy, ultimately expanding the tax base.<\/p>\n
New Zealanders understood the need to take on debt to grow the economy and fix \u201call the problems that we\u2019ve got\u201d. <\/p>\n
\u201cThey see the burst pipes in Wellington, they see the 45-minute drive to do 10Ks in Auckland. It\u2019s just not right.\u201d<\/p>\n
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The stand-off over the Strait of Hormuz – the waterway through which a large amount of the world\u2019s oil passes – is inflicting pain at the petrol pump. Photo \/ Getty Images<\/p>\n
Operational spending also came under scrutiny, with concerns about the significant increases expected in coming years for pensions, healthcare and education as the population ages.<\/p>\n
\u201cThere are some massive challenges in there, and unfortunately, governments with such short terms really struggle to identify and challenge those longer-term problems.\u201d<\/p>\n
This Budget would be \u201creally difficult,\u201d he said.<\/p>\n
\u201cThe recovery we all forecast has not happened; it\u2019s been postponed, so the Government\u2019s books are not flash. They are very difficult to balance, and [Finance Minister] Nicola Willis is going to come out and say, \u2018Well, we\u2019re doing what\u2019s right for the economy, and that\u2019s austerity\u2019. [But] I disagree with austerity in this environment.\u201d<\/p>\n
Miles Workman says ANZ\u2019s business and consumer confidence surveys showed a significant and concerning deterioration in sentiment around employment and investment intentions. <\/p>\n
Economists, he said, were not in a good position to know the next geopolitical friction or outcome. \u201cJust like everyone else, we\u2019re sitting on the sidelines watching the headlines, trying to gauge when the conflict in the Middle East might come to some resolution and what that may look like.<\/p>\n
\u201cWhat that really does to us is it puts us in what I\u2019d call scenario mode, where we just have to make an assumption about what the oil price might be and when things might start returning to normal, but that\u2019s just a line in the sand so we can put together a central forecast.\u201d<\/p>\n
Even if all the central forecasts were gathered up, there was a high possibility the outcomes at the end of the year were nowhere near any of them, he said. <\/p>\n
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Finance Minister Nicola Willis is due to deliver the Budget on May 28. Photo \/ Mark Mitchell<\/p>\n
But the longer oil prices stayed elevated, the more demand destruction was likely to be seen across the economy. <\/p>\n
Fuel costs affected every part of the economy, and as price increases flowed through, there was a risk they would influence pricing and wage-setting behaviour, as well as inflation expectations.<\/p>\n
That situation was the Reserve Bank\u2019s \u201cworst nightmare, because in that world you end up with persistently higher inflation than otherwise, despite the weakness in the economic activity\u201d.<\/p>\n
That was not the ANZ\u2019s forecast, Workman said, but because it was a risk, the bank thought it made sense for the Reserve Bank to start hiking the OCR from July. <\/p>\n
\u201cIt\u2019s a bit bittersweet because if they get going early with OCR hikes, it reduces the likelihood that they\u2019ll have to take the OCR as high, and that\u2019s really the tradeoff that we\u2019re playing here.<\/p>\n
\u201cIf you\u2019re a household with a mortgage and you do see these OCR hikes come through – let\u2019s say we\u2019re right and they come through in July – hopefully that damage isn\u2019t as bad overall.\u201d<\/p>\n
While it was not the ANZ\u2019s forecast for the Reserve Bank to hike this month, the market was toying with a May hike, Workman said, with market pricing fluctuating around or slightly below 50\/50 odds, although that had pulled back in recent days. <\/p>\n
\u201cThe idea behind that is, well, if they\u2019re going to go, they might as well just go, and I think that thinking has actually been how the Reserve Bank has reacted in the past, but this isn\u2019t a normal type of shock.\u201d<\/p>\n
This was a significant oil and supply shock to the point that if the Reserve Bank came out a little bit aggressively at this month\u2019s meeting, there was the potential to \u201cspook the horses\u201d across the economy, so a more gradual approach made sense. <\/p>\n
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Westpac chief economist Kelly Eckhold thinks the Reserve Bank will raise the OCR to 3% by the end of the year. Photo \/ Fiona Goodall<\/p>\n
\u201cIf you go with the July hike, you at least have an opportunity to prove to all the stakeholders across the economy that you are treading relatively carefully, and you are trying to signal the next move as well as you can despite the uncertainty. I think that’s the message we’re likely to get from the Reserve Bank.\u201d <\/p>\n
People with mortgages should brace for OCR hikes and mortgage rate rises, but rises were going to happen anyway this year, regardless of the oil crisis. <\/p>\n
Workman said the Government was making the right noises about targeted, temporary and fiscally neutral support in the Budget. \u201cIf it becomes a debt-funded response, well, that’s just boosting the demand side of the equation and then increases the likelihood inflation is going to be higher for longer, which puts upward pressure on interest rates, mortgage rates.\u201d <\/p>\n
Kelly Eckhold, Westpac\u2019s chief economist, said the global situation looked more threatening. Even if the crisis ended tomorrow, the damage to global inventories and supply chains would take months to repair. <\/p>\n
Eckhold thinks the Reserve Bank will raise the OCR, not this month, but in September, \u201cand then after that we’ll get a couple more rate rises this year\u201d, taking the rate from 2.25% to 3% by the end of the year.<\/p>\n
He said the Government had indicated it would continue to run a fairly tight ship and would not increase operational expenditure in the Budget, except perhaps in a few high-profile cases. <\/p>\n
\u201cThey are still quite focused on trying to limit the damage that would otherwise have been done to their fiscal projections coming from the Iran war and the associated impact on the forecasts,\u201d Eckhold said. <\/p>\n
\u201cOne of the things about this nature of the shock is that the Government can quite easily make things worse, for example, by spending a lot of money in an untargeted way. <\/p>\n
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The housing market has yet to feel the full impact of the Iran war. Photo \/ Fiona Goodall<\/p>\n
\u201cI don\u2019t think the Government, or the Reserve Bank for that matter, can really buy their way out of [this crisis]. The increase in energy costs is a loss to us and our standard of living, [but it has] been externally imposed and we haven\u2019t really got any way of offsetting that internally in the short term.<\/p>\n
\u201cIt just means a reduction in our living standards, and we have to reevaluate our spending and our budgets to reflect that.\u201d <\/p>\n
If the Government borrowed to shield households, it would likely intensify existing inflationary pressures and potentially add to fuel price volatility driven by supply risks.<\/p>\n
Eckhold expected house prices to fall about 1% this calendar year. While the market had performed slightly better than expected over the past couple of months, the full impact of the war had yet to be reflected in the data. <\/p>\n
Some were forecasting a possible global recession, but at this stage, New Zealand was looking at another \u201cmeh\u201d year, he said. \u201cWe\u2019re going to get growth in the 1.5% to 2% range. It\u2019s not shooting the lights out, but it\u2019s not a disaster either.\u201d <\/p>\n
And if the US and Iran were to bring the conflict to an abrupt end, the economy could gain momentum again. \u201cA lot of the other underlying factors driving optimism at the start of the year remain, and commodity prices are still quite supportive, and interest rates are still relatively low,” Eckhold said. <\/p>\n
\u201cIf you could take away the uncertainty that\u2019s been associated with the Iran war, then I think that would make a big difference to business and consumer sentiment, and that would flow through to the housing market.\u201d<\/p>\n
BNZ\u2019s chief economist, Mike Jones, said OCR rate hikes were likely this year, but probably not this month. <\/p>\n
\u201cTrying to pick the exact meeting is difficult given the uncertainty. We are still at September in terms of the first forecast increase – we’ve actually been there since before the war, which is not to say it\u2019s a view we hold with any great conviction in terms of \u2018is that the month?\u2019.\u201d<\/p>\n
An increase was conceivable at \u201cjust about any meeting\u201d, but this month was probably too soon, he said. <\/p>\n
\u201cThe risks move around rapidly on a day-to-day basis.\u201d <\/p>\n
– Click here to find properties for sale<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"– Kiwibank\u2019s chief economist Jarrod Kerr says the US-Iran conflict is increasing oil prices, impacting lower-income households. –…\n","protected":false},"author":2,"featured_media":662857,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164,1347],"class_list":["post-662856","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy","tag-latest-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/662856","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=662856"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/662856\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/662857"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=662856"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=662856"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=662856"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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