Ardern watches in horror as Reserve Bank steers New Zealand into recession

This week’s Westpac McDermott Miller Consumer Confidence Survey recorded the lowest New Zealand consumer confidence reading in records dating back to the late 1980s.

As shown in the next chart, the consumer confidence index has historically been a good leading indicator for economic growth, which suggests that New Zealand’s economy is headed for recession:

New Zealand consumer confidence

This strong correlation is not surprising, given household consumption is the economy’s biggest driver of growth. So where household consumption goes, the New Zealand economy generally follows.

In further bad signs for the economy, the “Good time to buy a major household item” sub-indices has collapsed to its lowest reading on record by a wide margin:

Good time to buy a major household item

Westpac didn’t mince words when explaining the results, claiming household budgets are facing a ‘perfect storm’ of rising costs for essentials and soaring mortgage rates:

“The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes”.

“And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months”…

“Confidence has fallen sharply across all age groups and income brackets. Confidence also is at low levels in every corner of the country”…

“This broad-based weakness in consumer confidence highlights the extent and nature of the challenges households are grappling with”…

“Adding to the concerns about the economic landscape, many households have seen the value of their assets falling in recent months”…

“The related slowdown in economic activity that we’re forecasting is expected to be widespread”.

In its latest ‘forward track’ guidance, the Reserve Bank of New Zealand (RBNZ) flagged that the Official Cash Rate (OCR) will hit 3.4% by December before peaking at 3.9% in June 2023. For their part, Westpac believes the OCR will only peak at 3.5% – still 1.5% above the current level.

Even if Westpac’s lower OCR forecast comes to fruition, Kiwi household budgets will get slaughtered.

The majority of Kiwi mortgage holders are on fixed rates of two years or less. This means that Kiwis that took out mortgages at rock-bottom pandemic rates have yet to impacted by the RBNZ’s aggressive monetary tightening, which only began in September 2021.

Financial stress will, therefore, soar late this year once these fixed rate mortgage terms start to expire and Kiwi borrowers are forced to refinance to significantly higher (perhaps double) mortgage rates.

The way it is headed, the RBNZ will drive the nation into recession just in time for next year’s general election.

Prime Minister Jacinda Ardern is already trailing badly in the polls. And the RBNZ’s aggressive monetary tightening looks set to finish her off.

Unconventional Economist
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    • Stephen Morris

      I suspect the realpolitik reason that politicians world-wide adopted the “independent central bank” policy in the 1990s was not to improve monetary policy.

      It was to provide someone else to take the blame for hard decisions.

      • Jumping jack flash

        Also there was some agreement everyone signed up to at roughly the same time which meant countries had to privatise everything and set up central banks. Howard signed us up. I can’t remember what it was called.

  1. Hugh PavletichMEMBER

    World’s bubbliest housing markets are flashing warning signs … Bloomberg Ca

    Check out 30 Nation table ‘New Zealand at top of risk ranking’
    2022 ‘worst time’ for first-home buyers in 65 years – Infometrics research … TVNZ

    Worst time to buy a house in 65 years: Infometrics … Susan Edmunds … Stuff NZ

  2. The Traveling Wilbur

    Nah. That photo is just stock standard for Jacinda – no doom-portents there; just her typical resting-we’re-all-going-to-die-face. Bit of an expert on that. Due to my resting-why-are-you-a-moron-face issue. [Not you UE.]

  3. kiwikarynMEMBER

    For some perspective, both those prior dips in 1990 and 2008 saw the end of the presiding Labour Govts and a new National Govt. Crossing fingers that history will repeat next year.

  4. The Traveling Wilbur


    – Never happen in ‘Straylia.
    – This time is no different. Really.
    – Thank goodness for the higher interest margin assessment included with all those new loans.
    – Australian residential property values double every 7-years anyway.
    – Transitory, Vlad’ll fix thing.
    – Can’t even find anyone to fill job vacancies – what economic crises?
    – She’ll be right – it’s too big to fail.
    – Principal PlaceOfResidenceKeeper Now!
    – Australia 2023: China’s paying your mortgage (when no one else can deliver IO).
    – Terms of Trade: Better than The Gold Rush.
    – Subs in Sydney – Nuclear energy for everyone. Fixed!

  5. Don’t worry she’s not worried! Between a WEF young leaders membership and visits to Blackrock I imagine she’s quite happy with how things are progressing.

  6. “Ardern watches in horror”
    I don’t think so. She is a much better person than that, and I think, quite contrary, that she is very pleased how things are progressing.

  7. Hugh PavletichMEMBER

    Note point 5 here … the Blommberg OECD housing bubble report quietly seeping in to the New Zealand media …

    Where are Stuff, NZ Herald, TVNZ, Newshub etc etc ? …

    Gareth Vaughan on oil & hubris, how the US could lose the new cold war, can central banks fix the causes of inflation, Vladimir Putin’s rich friends, a new take on local politics & NZ’s property risk … Interest Co NZ

  8. kiwikarynMEMBER

    Since the borders have opened, Jacinda has been back on her international junket tour. US, Australia, now Europe. Just like before Covid happened, she was never in the country. She’s too busy job hunting overseas. Almost prepared to put money on her stepping down just before the next election as she packs her bags and swans off to some cushy policy job overseas.

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