I’ll make a few very specific forecasts
further down, but first, I want to say what I really think about next year.
I think it might actually be okay.
I don’t think we’re looking at an economic boom, but I think – if the AI bubble on Wall Street doesn’t explode all over us – that we might be in for a period of gentle economic growth.
“Okay” might just feel pretty good after the wringer we’ve been through since Covid turned the world upside down nearly six years ago.
It’s not that everybody is going to be suddenly wealthier. New Zealand’s structural economic problems aren’t going anywhere.
But the immediate economic cycle seems to be turning in our direction for the first time in years.
If we needed a last dash of cheer after the better-than-expected 1.1% third quarter GDP growth figure that landed on Thursday, Friday’s confidence surveys delivered it.
The ANZ Business Outlook survey showed confidence up again. General business sentiment and firms’ own-activity expectations both rose and are now the highest since 1994.
It’s one thing to be optimistic, but businesses are not reporting that actual performance has much improved.
“The improvement in reported past activity (the best indicator of GDP in the survey) is strikingly broad-based and suggests annual GDP growth is going to head north rapidly,” said ANZ chief economist Sharon Zollner.
Even consumer confidence, which has been slow to rebound from the mid-year malaise, has turned positive.
Both the latest ANZ Roy Morgan and Westpac McDermott Miller surveys show a solid spike – both are now at their highest levels since 2021.
So, we may find ourselves with the wind at our back in 2026.
If we do, then it is important that we recognise it … and make the most of it.
Whether it’s government, business or our household finances, the time to make structural changes that set you up for future prosperity is when conditions are calm, when you aren’t in crisis mode and busy fighting for survival.
The window of relative calm may be brief, and it would be a shame to miss it.
As humans, we have a habit of taking the good times for granted.
I pondered that as I rode my bike* into work last week.
I was enjoying the ride but wasn’t sure why, until I realised I had a tailwind.
I only really noticed because I could see it blowing the trees and bushes around me.
I didn’t intuitively feel the wind at my back. I can tell you I never fail to notice a headwind.
This is a curse and a blessing of human nature. We feel adverse conditions – like headwinds and recessions – acutely.
We grumble and curse our luck. We yearn for the conditions to improve.
But all too often, we take them for granted when they do.
Good times feel neutral or normal, a kind of default we think we are owed.
Perhaps we are hardwired that way to encourage resilience or tenacity of some such evolutionary advantage.
Anyway, my point is that after years of recessionary and inflationary conditions – not to mention the turmoil of Covid – we need to be smart and bold in 2026.
Things happen. “Events, dear boy, events” as British Prime Minister Harold Macmillan allegedly once said when challenged as to why the economy was progressing to plan.
Events have a way of ruining the forecasts and predictions of the smartest and most meticulous economists.
Year-ahead predictions are a mug’s game. Far better, when making forecasts, to do it quietly and frequently, with regular updates.
Highlight your successes, bury the failures.
The more specific a prediction is, the more improbable it is that it will be correct. That’s just physics.
Heisenberg’s uncertainty principle, a fundamental principle of quantum mechanics, tells us you cannot simultaneously know both the exact position and exact momentum of a particle with perfect precision.
The more precisely you measure one, the more uncertain the other becomes.
My unscientific extrapolation of this holds that the further out an economist forecasts, the less reliable the forecasts become.
When Treasury tells us, as they did last week, that house prices will rise by 7% in 2028, we can be reasonably confident that they won’t.
I don’t mean to pick on Treasury specifically; they are required to make four predictions, so there is some sort of baseline upon which to plan government budgets.
But numerous academic studies (and common sense) point to long-term economic forecasts not being the paper they are written on … or the energy required to generate the pixels (or however that analogy should work these days).
Treasury’s forecast that house prices will rise by 1.9% next year seems intuitively more likely. I’ll go along with that, although I’d give it a margin of error of about 3% in either direction.
I prefer to predict things with much less margin for error.
I’m supremely confident that the All Blacks will not win the Rugby World Cup next year.
Luckily for us, the Cup isn’t held until 2027 by which time the All Blacks should have improved (or the Springboks might have gotten worse).
The big economic issue of 2025 will be resolved next year. Butter prices will fall. Kiwis will bake scones with abandon and dance in the street.
In the next few days, petrol prices will come down – just in time for Christmas and family road trips.
These are forecasts I’m happy to make because the die is already cast.
Wholesale commodity prices have slumped 40% in the past seven months, and we’ll soon start to see the flow through to retail pricing.
Oil prices crashed to four-year lows last week and the price of petrol will follow in the coming days.
After that, who knows? I suspect the 2020s will continue to be a wild ride.
Enjoy the break.
*Okay it’s an electric bike, but I try to pedal hard.
Liam Dann is business editor-at-large for the 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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