When it comes to Ukraine, what a bloody tragic loss of life it continues to be. It\u2019s a credit to the Ukrainians that it has gone so long, and at times this year reportage painted a picture of the smaller nation holding the upper hand. Unfortunately, this no longer seems so true. The Russians, we are told, are more confident and their EU counterparts have little to no winning strategy. Ukrainian drones have changed modern warfare, but it\u2019s been reported this week the Russians now have a new tranche of jet-powered weapons with parts sourced from China, showing ongoing resilience, resources and might.<\/p>\n
When it comes to Iran, one of a number of troubling recent turns has been the Iranian-backed Houthis\u2019 attacks on the Kingdom of Saudi Arabia, taking a port city and an island in the Yemen and Red Sea, putting them in a far stronger position to threaten and disrupt ships and supply chains. Saudi Arabia was even forced to shut its vital East-West oil pipeline this week.<\/p>\n
Taken together, the never-ending Ukraine and Iran wars are a disaster for the global economy and are increasingly pushing petroleum markets \u2013 petrol, jet fuel and diesel \u2013 sky high, so global markets are no longer pricing a return to normal but elevated prices ahead. This week Brent crude, the international oil benchmark, rose above US$108 a barrel and global oil executives are now saying the fuel shock they\u2019ve warned of all year has finally arrived. The reserve buffers Government and the private sector had in place are now nearly gone, but the prolonged heavy disruption of the Strait of Hormuz most certainly isn\u2019t. It\u2019s a grim picture.<\/p>\n
This in turn spells a word we know a little about here in New Zealand: I.N.F.L.A.T.I.O.N. This will hurt almost everywhere, including here, and when you add this week\u2019s historic turns in global bond markets and a central bank rate hike in the United States for the first time since 2023, both triggered by fresh oil price surges, things look even worse. Note the 10-year US Treasury yield increase to 5% puts it at its highest level since 2007, just before the last Global Financial Crisis. As top US experts have said, this is a worrisome threshold, \u201cthis is a moment to pay attention to\u201d.<\/p>\n
And this is before we get to Super El Ni\u00f1o, with predicted negative effects on food production, and the not-insignificant matter no conversation can be without: Big Tech, the Tech Bros and AI.<\/p>\n
Let\u2019s leave to one side the spat between Anthropic co-founder Dario Amodei and other tech kings who\u2019ve backed his call for a deliberate slowdown in advanced AI development to keep the world safe, and Trump, who dismissed all this as a \u201choax\u201d while backing a light regulatory touch for the mega-sector. The sense that a major correction to huge AI stock prices is coming is ever growing. This isn\u2019t necessarily because the sector is overhyped, but because it\u2019s real, and as with other transformative sectors of the past (think rail, think the internet), there is always a downturn after everyone piles into the right trend, invariably shaking the world economy before things at some point pick up, go and grow again.<\/p>\n
In the meantime, AI data centres are sucking up resources from water and energy to copper, chips, other electronic materials and people, all very inflationary and contributing to the bond and central bank issues above, alongside the fuel shock everyone agrees we are now finally in for real.<\/p>\n
Closer to home, Messrs Dann and Stubbs can point to some positive data, for sure, but outside exports it\u2019s right to remember this week\u2019s electronic card spending release shows spending by Kiwis fell across the board in August. Analysis by ASB\u2019s economists says this will be because of higher fuel prices and interest rates (the vicious circle for consumers we are now in). Why this matters isn\u2019t just the pain it causes. In the end, can you really have an economic recovery while consumers, households and SMEs (probably the same people) don\u2019t feel it? I, for one, certainly doubt it.<\/p>\n
You\u2019d be a brave pundit today to predict the Reserve Bank of New Zealand won\u2019t keep lifting the Official Cash Rate given the clear global consensus on the fuel shock and what it will do to inflation everywhere. The vicious circle of higher fuel costs spurring higher interest rates will continue.<\/p>\n
But before I am shot for all this treasonous gloom porn, I have to defend myself by saying a correct understanding of the economic realities has got to be better than belief in fairy stories. <\/p>\n
First, I don\u2019t think we can say anyone, including the Government, is responsible for what\u2019s happening. There are forces \u2013 and weirdnesses \u2013 here bigger than all of us. Equally, had we got the cyclical recovery I\u2019d hoped for at the end of this year or start of next, I\u2019m not sure anyone here would have deserved much credit either.<\/p>\n
Second, this economic picture calls into stark relief the need for economic competence and experience from our political leaders as we vote in election year. A related point is one I\u2019ve made a number of times in recent columns: strong pro-growth economic policies can make a real difference and set a small nation up to do better than the pack. I\u2019ve referred to Estonia, Ireland and Singapore. But let me add Greece, which also deserves a hat tip.<\/p>\n
Just years ago, the words Greece and economics, used together, were the punchline in jokes. Today, far from it. In 2023, for example, it was The Economist\u2019s country of the year. And this year it\u2019s attracting big dollars around its hedge fund arrangements, which look more attractive than regimes in other countries that have traditionally dominated this field.<\/p>\n
Finally, if American pollster James Carville is right that it\u2019s the economy stupid, how this reverberates in election year is anyone\u2019s guess. In a week with so much happening from Houthi attacks, oil prices and treasuries hitting historic highs, and the Fed raising rates, another interesting event has been the Swedish election, which after voting day has failed to deliver a clear winner with fewer than 30,000 votes separating the left-wing bloc and the right-wing Government. Prolonged coalition talks are now likely. I hope this isn\u2019t also in our future.<\/p>\n
Simon Bridges is the chief executive of the Auckland Business Chamber and was the leader of the National Party from 2018 to 2020. He has also served as the Minister for Transport, Economic Development and Communications. He is the chair of the NZ Transport Agency Waka Kotahi and has worked as a senior Crown prosecutor in the Tauranga District and High Courts.<\/p>\n