\u201cThe thing about Washington, DC is there\u2019s quite a lot of political intrigue, lots of discussions on geopolitics,\u201d he says.<\/p>\n
\u201cPretty much every conversation you have in the hallway is about the politics or the geopolitics of lots of different places in the world \u2013 and the Middle East was one of those places.<\/p>\n
\u201cI found myself, during those 12 years, spending a lot of time working in those countries and working with people who were experts in the area.\u201d<\/p>\n
Eckhold became hyper-focused on the Iran conflict as soon as it kicked off in February.<\/p>\n
\u201cI just realised immediately, they [the US administration] are doing the thing that every geopolitical analyst would have advised them not to do.\u201d<\/p>\n
He has argued for some time that the situation in the Strait of Hormuz can\u2019t be resolved easily or quickly.<\/p>\n
As the conflict drags on, he has been proved correct.<\/p>\n
Despite oil prices stabilising at about US$100 ($173) a barrel and concerns about fuel shortages easing, Eckhold says we\u2019re not out of the woods yet.<\/p>\n
It\u2019s certainly still a crisis on a global level, he says.<\/p>\n
\u201cThe world\u2019s lost an equivalent amount of supply, which only compares to the 1974 oil shock.<\/p>\n
\u201cBut because we use oil less intensively than we did back then, it hasn\u2019t really become a crisis for New Zealand.\u201d <\/p>\n
Oil at US$100 doesn\u2019t break the New Zealand economy, he says.<\/p>\n
\u201cIt\u2019s pretty unpleasant, but it doesn\u2019t break it.<\/p>\n
\u201cWhat we\u2019ve discovered as we\u2019ve gone through is, firstly, these conflicts can go on a hell of a lot longer than first thought.<\/p>\n
\u201cBut there\u2019s also a lot of moving parts, a lot of buffers in the system that we\u2019re gradually eroding.<\/p>\n
\u201cThe question is now, when do they break?\u201d<\/p>\n
Eckhold is talking specifically about global oil reserves, which have buffered markets from the worst of the supply shortfall, but which are now dangerously low.<\/p>\n
\u201cSo when does the chain break?\u201d he says.<\/p>\n
Westpac chief economist Kelly Eckhold.<\/p>\n
He suggests the way US President Donald Trump talks, the Israelis talk, and the Iranians talk implies the Strait of Hormuz could be closed for a long time.<\/p>\n
\u201cThey [all] have limited room to manoeuvre, to give up on things. The alternative, without a negotiation being successful, is pretty dire for all of them.\u201d<\/p>\n
From \u014camaru to Washington, DC<\/p>\n
It\u2019s a long way from \u014camaru, where Eckhold grew up, to the Strait of Hormuz. Or Washington, DC for that matter.<\/p>\n
There wasn\u2019t a lot of money in his household growing up, he says.<\/p>\n
His father, a freezing worker, had to contend with the tough economic reforms and downturns of the 1980s.<\/p>\n
\u201cWe didn\u2019t have that much. I remember mum and dad had to scrape up loans from about three or four different places to buy a relatively simple house in a suburb outside \u014camaru.\u201d<\/p>\n
His earliest memories of money are things such as getting $5 for Christmas from his nana or collecting empty bottles to return for a refund.<\/p>\n
\u201cI started working when I was probably 12 or 13 years old in market garden operations around town. I remember the first day of work I did, I got $7.\u201d<\/p>\n
He remembers saving his money at an early age and says he\u2019s always been conservative with debt and investments.<\/p>\n
\u201cI mean, I think my parents have always focused on just making sure that you can cover the interest that you\u2019re building up,\u201d he says.<\/p>\n
\u201cI think that came from their experiences, when they were trying to build a family and build a household, you were facing interest rates over 20%. It was just tight.\u201d<\/p>\n
Eckhold says he got into economics in high school and immediately loved it.<\/p>\n
\u201cI did that along with accounting and I found it therapeutic, almost,\u201d he says.<\/p>\n
\u201cThere is a logic and an order to things like accounting and economics that I liked.\u201d<\/p>\n
From there, there was a strong expectation that he\u2019d go on to university.<\/p>\n
\u201cWhich is quite remarkable because no one else in my family at that stage had been anywhere near university,\u201d he says.<\/p>\n
At the University of Otago, he switched to focus on finance and economics.<\/p>\n
\u201cIt becomes quite mathematical, so the logic just expands, doesn\u2019t it? You can solve things.\u201d<\/p>\n
He did well there. Despite coming out into the workforce at the height of the early 90s unemployment spike, Eckhold managed to get a job at the Reserve Bank under Don Brash.<\/p>\n
\u201cI looked on these statistics, about 20% at this stage,\u201d he says.<\/p>\n
\u201cIt was really hard. I got two interviews coming out of university … one with Treasury and one with the Reserve Bank. You couldn\u2019t get one with anyone else.\u201d<\/p>\n
Eckhold recalls the hard focus the RBNZ had on taming inflation at that time.<\/p>\n
\u201cIn the first couple of years, I was writing memos for Brash so that he could explain why inflation might potentially be 2 or 2.1%, usually because something like the oil price went up or down.\u201d<\/p>\n
After that initial stint at the RBNZ, Eckhold headed to London and a job with the Bank of England, on the trading desk.<\/p>\n
It was a great opportunity, but he was on a Kiwi working visa and had to leave after 18 months.<\/p>\n
It did give him a foot in the door at the IMF, though.<\/p>\n
\u201cI came back and went to the IMF after having worked for them as a contractor for a couple of weeks at a time,\u201d he says.<\/p>\n
\u201cThat was something where somebody else on the [trading] desk had been doing that sort of work, and the IMF was always looking for experts around the world to come and help them.\u201d<\/p>\n
He seems humble about his success in the organisation.<\/p>\n
\u201cYou know, once you start doing that work, people get comfortable with what you\u2019re doing.\u201d<\/p>\n
He stayed for almost 12 years, eventually becoming a senior financial sector expert, which involved him analysing economies worldwide and writing reports for the fund.<\/p>\n
\u2018I call it as I see it\u2019<\/p>\n
\u201cI tend to call it as I see it,\u201d Eckhold says.<\/p>\n
\u201cBut you\u2019ve also got to be very conscious about what you know and what you don\u2019t know.<\/p>\n
\u201cMost of the things that you have to comment on, it\u2019s not a slam dunk to say that someone\u2019s got something categorically wrong because, you know, there\u2019s a lot of moving parts out there. <\/p>\n
\u201cBut I think people appreciate a bit of honesty and a bit of clarity as well.\u201c<\/p>\n
Eckhold hasn\u2019t been shy about taking a stance on big issues, including what should happen to interest rates.<\/p>\n
That\u2019s seen him offer personal takes in Westpac economic reports about what he thinks the RBNZ should do, in addition to formal forecasts about what it will most likely do.<\/p>\n
For the record, he\u2019d have been on the side of the Monetary Policy Committee members who voted to raise the Official Cash Rate at the May meeting. <\/p>\n
But he\u2019s wary of opinions being treated as gospel. <\/p>\n
\u201cHeck, you can\u2019t come across as knowing everything, because you don\u2019t actually know that much at all a lot of the time.\u201d<\/p>\n
Economic forecasts provide a useful framework for understanding the world, I suggest.<\/p>\n
\u201cThat\u2019s the best way of thinking about it,\u201d he says.<\/p>\n
\u201cBut you need to be clear as well. Economists often get criticised because we\u2019re on the one hand or on the other hand. By the time you get to the end of the sentence, you go: \u2018Well, has this guy said anything?\u2019<\/p>\n
\u201cYou need to say something.\u201d <\/p>\n
Three months ago, all the initial Iran war scenarios said that by now the oil price would be US$175 a barrel, he recalls.<\/p>\n
\u201cIt\u2019s not US$175 a barrel, is it? Because lots of things have changed in the interim.\u201d<\/p>\n
Some things have gone right, but the big one, the resolving of the war, hasn\u2019t yet, he says.<\/p>\n
\u201cIt\u2019s a difficult position, as we said earlier, you still can\u2019t say we\u2019re out of the woods here because there\u2019s still this massive blockage.\u201d<\/p>\n
Global view on New Zealand\u2019s economic problems <\/p>\n
Eckhold\u2019s time at the IMF has given him a fresh set of eyes on New Zealand\u2019s economy.<\/p>\n
Relative to some of the countries he\u2019s studied, it\u2019s certainly not all bad.<\/p>\n
\u201cI would say that in New Zealand we take a lot of stuff for granted,\u201d he says.<\/p>\n
\u201cProbably in 90% of the countries I worked in, the real basic stuff, we just take for granted, the idea that you can go to the bank and borrow money at a market-determined interest rate, or you can go and get some foreign currency because you want to buy something from overseas or go overseas.<\/p>\n
\u201cThe idea that prices for things are market-determined.<\/p>\n
\u201cThese are things that are alien to a lot of parts of the world, but we just accept that that\u2019s what happens.\u201d<\/p>\n
So, having worked in countries with much greater degrees of poverty and social inequality, what does Eckhold see as the biggest challenges facing New Zealand?<\/p>\n
\u201cWe need to build people\u2019s real incomes in this country, and that comes from growing the pie as opposed to divvying it up,\u201d he says.<\/p>\n
\u201cI think a real challenge we have in New Zealand is that too many of us are focused on getting as much of the existing pie as we can.\u201d <\/p>\n
He sees too much \u201crent-seeking\u201d behaviour because we have a lack of competition in important parts of the economy.<\/p>\n
\u201cThey are getting as much as they can for themselves and their stakeholders, but it comes at the cost of the rest of us.<\/p>\n
\u201cSo I think action in the form of thinking about the competitiveness of this economy will be key, so that everybody can have a bit more, as opposed to some people having a lot more.\u201d<\/p>\n
That\u2019s not unique to New Zealand, he says.<\/p>\n
\u201cMost of the countries I worked in, I\u2019d turn up, and you would see what the problem was, but then you would see that the people you were talking to also knew what the problem was.<\/p>\n
\u201cWhat they wanted you to do was to do something to break the deadlock between the stakeholders who were stopping them from doing what they needed to do to fix things.\u201d<\/p>\n
It\u2019s hard to get momentum because the things that need doing are always perceived as disruptive, he says.<\/p>\n
\u201cThere\u2019s never something that you do that will cost nothing or have no risk, right? <\/p>\n
\u201cOtherwise, you would\u2019ve done it already.\u201d<\/p>\n
Listen to the full episode<\/a> for the complete conversation.<\/p>\n