Crack open the bubbly, it’s happening. The end of the great post-Covid malaise is here.
That’s not a very catchy thing to call the downturn that’s been hanging over the country for almost four years.
A colleague asked me what we’ve dubbed the recessionary period we’ve suffered since Covid stimulus ran out and interest rates started rising in late 2021.
I haven’t been able to think of anything that rhymes, or even any alliteration (suggestions on the back of a postcard, please).
But I like the word malaise. Things have never quite collapsed the way they did in 1987 or during the Global Financial Crisis.
They’ve just sucked for a long time.
Perhaps (speaking of bubbly) we should call it the Great Hangover, given New Zealand did hit the stimulatory sauce a bit harder than many countries.
Anyway, why am I so sure that the tentative green shoots I’ve been writing about for the past month are finally taking hold?
Well, first up, the Reserve Bank of New Zealand (RBNZ) went as close as it possibly could to calling it officially over with its Monetary Policy Statement last week.
Unless something horrible happens (see earlier columns about AI bubbles and Wall Street meltdowns), interest rates are forecast to stay on hold for the next year.
And the first move after that is forecast to be upwards.
The RBNZ was saying with its forecasts that it believes that, on balance, its job of stimulating economic growth is done.
The central bank is confident there is more than enough monetary policy stimulus still to flow through the economy in the coming months as Kiwis refix their mortgages at lower rates.
Westpac economists estimate that over the next year, 75% of all fixed-rate mortgages will come up for repricing, with most of that coming in the next six months.
Anecdotally, I’d say an awful lot of people seem to be due to fix before Christmas.
These are some of the larger-than-usual proportions of mortgage holders who have gone on to floating rates in an effort to fix long at a low point of the cycle.
If you ask me (and people certainly do), the RBNZ has sent a strong signal that now is the time to lock in.
It is a signal that actually risks pushing fixed rates up sooner than they might have moved.
Markets had priced in much stronger odds of a cut in February than eventuated, and wholesale rates (two-year swap rates) have actually risen already.
The RBNZ was aware of that risk and decided the economy was strong enough to handle it.
Meanwhile, the upside is that if more people lock in lower rates sooner, we’ll see more cash flowing into consumers’ pockets faster.
After this surprisingly definitive RBNZ call, we’ve had some really promising economic data.
It has backed up the bank’s confidence in the strength of the recovery and should ensure that outgoing Governor Christian Hawkesby can sleep soundly this weekend.
New Stats NZ retail spending figures were the first to drop on Thursday morning.
“Retail spending levels charged higher in the September quarter, with the volume of goods sold rising by a solid 1.9%,” said Westpac senior economist Satish Ranchhod.
“That was much stronger than our own and market forecasts for a rise of around 0.5%.”
That was followed by an ANZ Business Outlook that showed confidence is now at an 11-year high.
An 11-year high sounds quite dramatic. Back in 2014, New Zealand’s economy was on a roll.
HSBC’s Australian economist, Paul Bloxham, had just called us a rock star economy. We’d shaken off the GFC and the worst fallout of the Christchurch earthquakes. We were really starting to cash in on the free trade deal with China.
We were also, in Bloxham’s view, doing better than Australia.
Rock star economy went on to become such a popular phrase that it has entered the Kiwi cultural lexicon. I should probably ask him to provide the nickname for our long downturn.
All of which is to say that things clearly aren’t as good as that right now.
It’s important to keep confidence surveys in context. These surveys are primarily asking people if they think things are going to get better or worse.
What is heartening is the trend. Over the past few months, more businesses have been feeling confident and there was a big jump in November.
As ANZ chief economist Sharon Zollner pointed out, the really encouraging bit was that “optimism seems rooted in recent experience”.
Firms reported that their own past activity leapt from +5 to +21, the highest reading since August 2021. Past employment lifted eight points to -2.
ANZ chief economist Sharon Zollner says “the stars are aligning for better times ahead”. Photo / Corey Fleming
In other words, this isn’t just business people assuming conditions are getting better; it’s them reporting that they have.
Consumer confidence has been much slower to recover in the past few months.
People have remained reluctant to spend while they’ve juggled job insecurity and ongoing cost-of-living issues.
The labour market is typically the last big piece of the puzzle to drop in a recovery.
But the latest ANZ Roy Morgan Consumer Confidence survey landed on Friday and also indicated a significant turning point.
Consumer confidence lifted six points (from 92.4 to 98.4) in November, to its highest level since June.
The proportion of households thinking it’s a good time to buy a major household item rose five points.
That is still a net negative (ie more people are downbeat than are upbeat). But Zollner points out that this indicator hasn’t been positive in more than four years.
So the fact that the balance is shifting is very good news.
“This is not the only indicator suggesting that things are looking up for consumers,“ Zollner points out.
“Consumer arrears have been declining, employment has returned to modest growth, and retailers are reporting improved activity.“
The slowdown has achieved more than just bringing inflation down, she says.
“Household debt relative to incomes is now back where it was before the housing bubble.”
“Now we’ve taken our medicine, the stars are aligning for better times ahead.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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