Ardern falls victim to Reserve Bank’s recession warmongering

On Thursday, I posted the latest Westpac McDermott Miller Consumer Confidence Survey, which recorded the lowest consumer confidence reading in records dating back to the 1980s.

Moreover, as shown in the next chart, there has historically been a strong correlation between consumer confidence and gross domestic product (GDP) growth, suggesting New Zealand is headed towards recession:

New Zealand consumer confidence

New Zealand headed for recession?

The strong correlation between consumer confidence and economic growth makes sense given household consumption is by far the biggest driver of New Zealand’s GDP. Therefore, where household consumption goes, New Zealand’s economy typically follows.

In more bad news for the economy, the proportion of people who have plans to buy a major household item, which is a good indicator of confidence, are at far lower levels than they were through the Global Financial Crisis recession:

Good time to buy a major household item

There’s never been a worse time to buy a major household item.

The collapse in New Zealand consumer confidence has been driven by three inter-related factors.

First, like everywhere Kiwis cost-of-living has risen on the back of global supply shocks, which has sent inflation soaring.

Second, the Reserve Bank of New Zealand (RBNZ) has aggressively hiked the Official Cash Rate (OCR) from 0.25% in August 2021 to 2.0% currently, which has lifted fixed mortgage rates (the majority of mortgages in New Zealand) to nearly 6%.

The RBNZ’s ‘forward track’ guidance has the OCR hitting 3.4% by December before peaking at 3.9% in June 2023, meaning the RBNZ is only around half way through its rate hiking cycle.

Given the bulk of Kiwi borrowers are on fixed rate mortgages of two years or less, most that took out jumbo mortgages at rock-bottom pandemic rates have yet to impacted by the RBNZ’s aggressive rate hikes. But they know D-Day is fast approaching, which helps to explain why Kiwis are so glum.

Third, and directly related to the above, New Zealand’s median dwelling price has already fallen 9.2% from the November 2021 peak with the stock of unsold homes also ballooning.

Therefore, Kiwi’s biggest asset is plunging in value at the same time as their cost-of-living (including via mortgage repayments) is soaring, which is a recipe for discontent.

ASB senior economist Mike Jones summed up the confluence of factors and what it means for household consumption:

“Essentially, falling house prices create a feeling of being a bit less wealthy, and that disrupts extra discretionary spending.”

The sharp rise in mortgage rates does not help as it has a cash impact and means people need to spend more of their income on servicing their mortgage. “That cuts into what they can spend elsewhere, and it’s a real effect, rather than a psychological one.”

There is only one way discretionary spending is going at the moment, and that is down, Jones says.

Infometrics chief forecaster Gareth Kiernan also believes the sharp fall in housing turnover will impact consumption spending and growth:

“The more houses that are being bought and sold the more spending you get on household items, such as fridges or washing machines or carpets, and on home renovation work and products. When turnover is down, it’s the opposite.”

Whereas ANZ chief economist Sharon Zollner noted that the latest ANZ business outlook survey showed that residential construction intentions have fallen off a cliff, diving to -50 in May from -37 in April. This, in turn, suggests a sharp slowdown in building activity is coming.

Thus, New Zealand’s economy is headed into recession just in time for next year’s general election.

The timing couldn’t be worse for Jacinda Ardern’s Labour Government, which has already fallen badly behind the polls:

New Zealand primary vote

Voters abandon Jacinda Ardern’s Labour.

As shown above, voters started deserting the Government after the RBNZ began hiking interest rates in September.

With New Zealand interest rates forecast to rise much further, and house prices set to plunge, Jacinda Ardern is looking more and more like ‘dead Prime Minister walking’.

The RBNZ’s inflation warmongering is Ardern’s biggest barrier to reelection.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. I don’t get the tone on JA.

    It’s been claimed that NZ house prices need to come back to earth, which a correct is taking place, but its JA’s fault.

    • It’s not her fault. But she’ll get blamed. Wrong place at the wrong time.
      It’s a bad time to be an incumbent. Rising inflation, rising interest rates, and falling house prices are a toxic mix for any political leader.

      • I disagree with this.

        The NZ Government did multiple things in 2020 that exacerbated the problems she currently faces. Firstly, the RBNZ did some really quite extraordinary interventions – which must have been at least signed off by the Government – including relaxation of LVR restrictions (which led to an investor free-for-all) and mortgage holidays (which given the payments people got through COVID support were utterly unnecessary). These credit measures really stimulated the property market and took it to extremes.

        Second, the fiscal transfers the government undertook were unprecedented in scale, both direct fiscal transfers through COVID-19 support (which should have been really a bare-bones universal basic income, but wasn’t) which triggered a binge in spending (and blew-out the current account deficit), and then they engaged in many other ‘shovel ready’ projects, which acted to draw capacity. The fiscal impulse was colossal, and she signed off on it.

        Third, she closed the border so completely that NZ was on a par with North Korea. The horror stories of New Zealanders wanting to come home (myself included) were horrendous. In the process, many people who wanted to come to NZ as migrants were stopped, as migrant workers (e.g. fruit pickers) were stopped, students couldn’t resume their studies… and so we had two years of no net migration. The effect of that’s been to massively shift the underlying housing supply-demand balance.

        I would also argue that her willingness to run roughshod over the law – be it the lockdown, MIQ etc – ignore advice from officials has created a toxic environment domestically.

        So to argue she’s absolved of any responsibility for this situation is bullshit.

        • Hugh PavletichMEMBER

          Peter … you are correct … and thank you !

          The failings of the Ardern Labour government go much further than your outline above.

          They seem to have a knack of screwing up everything they touch.

          It is the worst NZ government I have experienced in my lifetime. I’m 71.

        • kiwikarynMEMBER

          You forgot the incredibly divisive race based policies they are implementing everywhere. Health care is now being outright denied to white people, and only Maori/Pacific people can get priority care for access to health services along with all the funding. Same in education – students cant get into medical school if they are white or Asian as 60% of places are restricted to Maori/Pacific students.

        • JoeJackMEMBER

          “ So to argue she’s absolved of any responsibility for this situation is bullshit.”

          Exactly right.

          While I acknowledge the problem existed before Arden came to power, how much more did housing prices increase on her watch, when she was elected on a promise to make housing prices more affordable for New Zealanders, before the current downturn?

          By letting housing prices go through the roof over the last couple of years, she made the present situation even worse.

          I look forward to her being shafted on election day.

    • kiwikarynMEMBER

      She literally ran an election campaign in 2017 on promising to solve the “housing crisis”. Instead, prices since she was elected have soared. Its a case of “you think that was a housing crisis, here hold my beer”. Outside of Auckland prices had barely risen since 2007 – I purchased a house in 2014 that cost $3k more than what the vendor paid for it in 2007. Now that house is worth over twice what I paid for it, and that price appreciation all came since Labour was elected. So if you think Aucklanders hate her, go talk to people in the regional and rural areas where practically everyone is on minimum wage and house prices are now at big city levels. Her big housing project that was going to solve the country’s housing woes was an unmitigated disaster, and actually served to increase the price of new builds even further (due to complete incompetance and zero real world business experience they structured the programme to incentivise developers to overcharge for new builds because when they did not sell, the Govt promised to buy them at the full price from the developer. Duh!). It was only the deliberate campaign of fear promulgated by this Govt that got her re-elected in 2020 (and they are still trying to pump up the fear which is why we are all still wearing masks everywhere and 4th booster shots are now being forced on people). People are fleeing the country at a rate that hasnt been seen for decades, so the good news is that soon there will be plenty of empty houses.

  2. Hugh PavletichMEMBER

    What is happening is the normalization of interest rates and hopefully inflation (provided the RBNZ comes down hard on it) … and too … the restoration of a normal housing market.

    This is all essential, likely painful and welcome news.

    The monetary and fiscal authorities cluelessly panicked and massively over – reacted in responding to covid … mainly fearful it would pop the housing bubble.

    That was their only real concern,

    In ignorance they never saw the inflationary consequences of their actions.

    The incompetent Ardern Labour government is now a sideshow and irrelevant. All the polls are very clear.

    Appropriately … the market is in control now.

  3. Consumption is being pressured by a confluence of forces: real wages are declining as they fail to keep pace with inflation, the labour market is tight but the ability of households to add incremental labour supply to augment the loss from inflation is negligible as unemployment is low, participation is high, and labour force growth minimal. Consumption is also being impacted by scaled down fiscal transfers from COVID support. Interest rates are rising, encouraging households to postpone Consumption and drawing spending from the economy, savings are modest and many are credit constrained, and wealth is falling; bonds, stocks and housing. Finally, the CCCFA and rising stress tests, and tighter macro prudential has tightened credit.

    It’s perfect storm, and has been quite predictable since late last year.

      • 2023HomelessMEMBER

        Compounded by the Bank of Mum and Dad turning off the tap as their equity drops. Meaning 20% is even harder than on the way up!

      • Well, banks have provided LVR>80% loans at an average pace of NZD 339m/month this year, so as ANZ are about 30% of the market, we’d be losing about NZD 100m/mth of credit creation. That’s a decent clip, but it’s only around 2% of total residential lending on a monthly basis. I think where it’s important is that other banks are likely to follow-suit and that will definitely crimp purchases of homes, particularly at the lower-end of the market. Also, it’s a clear signal to the market that ANZ are concerned about serviceability and solvency risk, despite whatever the Bank’s communications staff might try to spin.

        • The Travelling PhantomMEMBER

          Great insight as always! Thanks .
          How far do you see Oz behind NZ?
          Are aussie banks in dire need to lift the intrest rates here in Oz out of cycle to insure their profitability due to NZ risk?

          • Hard to say how far Australia is behind NZ. House prices in Melbourne and Sydney have only just turned down, so that puts them about 6-months behind Auckland, but they could play catch up. Obviously, in Australia much of the mortgage market is on floating rate debt, so as the RBA hikes the pass-through is more rapid than in NZ. It’s something I am working on right now actually…

            WRT the impact on the parent, much depends on how large the correction in property prices is, and how much pressure is exerted by impairments. All pretty much pie-in-the-sky kind of stuff. I am thinking that the impact should be modest as most home owners have large equity buffers and can be restructured (FHB and possibly investors being an exception), and any impairment cycle would take several years to work through. Also, NZ as a whole is probably smaller on the parent than either Sydney or Melbourne (probably similar to Queensland) so it may crimp earnings, but banks are well capitalized and well funded so I really dont see much impact on them. There may be some risk in smaller banks and non-bank financial institutions, but these won’t be systemically important.

          • The Travelling PhantomMEMBER

            ^^ many thanks
            Keep those great comments and insights coming 👍 👌

    • kiwikarynMEMBER

      Its a media storm in a teacup. Abortion legislation in NZ was comprehensively overhauled in 2020 and Luxon has already stated that there will be no changes to it. Nobody cares what a MP’s personal views are, the law is settled. But Covid has become boring now so the media are desperately trying to stir up clickbait controversies wherever they can.

  4. Hugh PavletichMEMBER

    New Zealands self inflicted plasterboard fiasco … continues …

    Gib board selling for $410 a sheet on Trade Me hits small builders the hardest … Daniel Smith … Stuff NZ

    The national Gib shortage is causing the asking price of plasterboard selling on Trade Me to skyrocket.

    One listing in Ohakune for standard 10mm Gib had a buy now price of $410.

    In Auckland 20 sheets of 13mm Gib Aqualine had a buy now of $3500 ($175 a sheet), and in Northland an assortment of 18 sheets of offcuts had a buy now of $1400. ,,, read more via hyperlink above …
    Simplicity blasts Fletcher Building for lack of Gib … Daniel Smith … Stuff NZ

    Simplicity Fires Fletcher Building, Establishes Own Plasterboard Supply Chain At 20-40% Lower Price … Scoop NZ

    GIB crisis: Government stepping in over plasterboard woes … Katie Bradford … 1News TVNZ

  5. kiwikarynMEMBER

    Jacinda doesnt care, she’s off on her third overseas junket in as many months, pitching her resume to the UN, NATO, and whoever else will invite her to speak. I doubt that she will even stand for re-election next year but will announce her retirement “to spend more time with her family”.

  6. greedypuppyMEMBER

    NZ, Australia and Japan are attending the NATO meeting -which is a big deal as global forces seek to shore up their reach.

    Hardly the junket you suggest -even the conservatives in Australia aren’t questioning the reason to attend

    • kiwikarynMEMBER

      NZ is not a member of NATO nor will it ever be invited to join. There is zero point to Ardern being there. NZ doesnt get involved in international military operations, we dont even have a military any more. She’s just there to plug herself.

      Anyway, as I said, its her THIRD trip. The first was to the US to pose with the President, go on the Stephen Colbert show, and give a speech at Harvard University. Hardly matters of national importance. Then she felt the need to go visit Australia and the Pacific Islands, presumably because the weather was nice and she wanted a holiday, so she took her partner and kid along.

      There’s something really off about how she kept the borders closed for 2 years, and excluded NZers from returning home during a pandemic, then as soon as they are open again she’s off on overseas junkets every month, while her countrymen are stuck at home unable to afford food, rent, and petrol let alone a swanky overseas holiday. Read the room you #$%^&*

  7. Hugh PavletichMEMBER

    ANZ’s economists warn that the stars are aligned for a slowdown in residential construction … Greg Ninness … Interest Co NZ

    Both house prices and GDP set to suffer as interest rates climb … Harry Smith … Stuff NZ

    Shockwaves as new-build market slows and fears rise for housing market new builds … Carmen Hall … NZ Herald