Ardern looks on helplessly as New Zealand hurtles toward recession

The latest batch of consumer confidence reports for New Zealand shows that Kiwis remain extremely depressed on the back of soaring inflation and interest rates.

The ANZ-Roy Morgan’s consumer confidence index fell 1.8 points in June to 80.5 to be a touch above April’s record low:

ANZ-Roy Morgan consumer confidence index

Confidence firmly stuck at recessionary levels.

ANZ-Roy Morgan’s confidence composite gauge is also pointing firmly towards recession:

Households are dealing with a lot right now: incomes not keeping up with inflation, lifting interest rates, falling house and other asset prices, and ongoing COVID and general economic uncertainty…

Overall, these data are sending sobering signals about the outlook. In particular, retail spending could soon find itself on the ropes if consumers follow through with their stated answers to the question of whether it is a good time to buy a major household item. So far, spending has been holding up (figure 2), but this is an ominous sign for retailers nonetheless…

Good time to buy a major household item

Our confidence composite gauge combines lagged Business Outlook expectations and intentions with consumer sentiment (figure 4). Still at recessionary levels, it continues to highlight downside risks to the outlook…

Composite confidence index

The latest Westpac McDermott Miller Consumer Confidence Survey also recorded the worst kiwi consumer confidence reading in records dating back to the 1980s, alongside the lowest “Good time to buy a major household item” result on record, which is the strongest indicator for household consumption.

New Zealand’s poor consumer confidence is understandable. It is also likely to get even worse.

Like everybody else across the globe, Kiwis are experiencing soaring cost-of-living on the back of global supply shocks. These shocks have sent inflation soaring, which has prompted the Reserve Bank of New Zealand (RBNZ) to aggressively hike interest rates.

New Zealand’s official cash rate (OCR) has soared from 0.25% in August to 2.0% currently, which has sent fixed mortgage rates (which comprise the majority of mortgages) to around 6%.

Worse, the RBNZ’s ‘forward track’ guidance has the OCR nearly doubling to 3.9% by June 2023, which would mean the tightening cycle is only around half way through.

As the majority of New Zealanders are on fixed rate mortgages of less than two years, most that originated mortgages at rock bottom rates over the pandemic are yet to be impacted the OCR hikes. But they know that Judgement Day is coming and they will soon be forced to refinance at double mortgage rates, which helps to explain why Kiwis are so depressed.

Related to the above, house prices have fallen heavily in response to rate hikes, down 9.2% from their November 2021 peak. The stock of unsold homes has also ballooned as buyer demand has collapsed. The housing correction is certain to worsen as monetary policy tightens, with New Zealand facing its biggest house price correction in generations.

The upshot is that Kiwi’s major asset is plunging in value at the same time as their cost-of-living (including mortgage costs) are soaring. In a nation so obsessed with housing, this is a recipe for dissatisfaction and pessimism.

Finally, ANZ’s latest business outlook survey showed that residential construction intentions have collapsed, slumping to -50 in May from -37 in April. This, in turn, points to a sharp slowdown in building activity.

The timing could not be worse for the incumbent Ardern Labour Government, whose voter support has already collapsed since the RBNZ commenced its rate hiking cycle in October:

New Zealand primary vote

Kiwis no longer love Jacinda Ardern’s Labour.

As shown above, Labour’s party vote has collapsed from 45.5% immediately before the RBNZ’s first rate hike to 31.5% in May – a massive 14% decline.

With the next New Zealand election due in late 2023, and Kiwis confronting soaring mortgage costs, plunging house prices, and a potential recession, Jacinda Ardern is staring at near certain electoral defeat. Worse, she can’t do much about it, given the RBNZ holds the interest rate lever.

Unconventional Economist
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Comments

  1. Camden HavenMEMBER

    Prime Minister Ardern insisted that producers from New Zealand would also benefit. “Kiwi fruit is finally able to come into the European market tariff-free,” she said.

    NZ PM talking about the FTA wit Europe. Total joke.

    Petrol will be Nz28$ a litre before long.

  2. She’ll have to put her big boy pants on rather than strutting the halls of parliament in red frocks:)))

    • But does she care? As a Klaus Schwab devotee riding the collapse down Does she care? So far she has followed the WEF corporation guidelines apparently.

  3. Hugh PavletichMEMBER

    As a New Zealander, I am most grateful to you Leith giving our leader Ms Ardern media coverage outside NZ. She is spending most of her time now outside the country … with the international media ignoring her it appears.

    This interesting perspective is circulating around NZ (h/t AW) …

    “Good Morning All,
    My brother lives in London and because he lives on his own be it all in a lifestyle village I contact him regularly both by email and phone.
    I did so last week (Monday 27th) and brought to his attention that our “great leader” was visiting the UK following her visit to the NATO conference in Europe and the furtherance of a free trade agreement with the EU.
    He responded that he was unaware of this and that he had seen nothing of her presence in the UK reported by British Press or on British TV.
    I asked him to keep an eye open for any coverage and let me know just what was said and the general tone of the reporting. He said he would.
    Late last week I sent him links to the reports we saw here in New Zealand on streaming services and mainstream TV channels. These covered her meetings with the Prime Minister of Spain and the President of France, her attendance at the NATO meetings as an observer and the signing of a FTA with the EU. I also sent media reports about the FTA agreement and the general opinion being expressed about this here in New Zealand.
    He came back to me on Saturday to say he had not seen or heard of any coverage of her visit and asked me if she had in fact arrived in the UK? She had as we know including visiting “Boris the Blond” at No 10 Downing Street and had given an interview there with Boris.
    What was reported was a number of questions directed at Boris about his own current difficulties with Ardern sitting beside him. No questions were directed to her or if they were they were not reported in the British media.
    He looked at “The Times” and the “The Guardian” on Friday and Saturday where applicable and the Sunday newspapers. Nothing reported.
    If I had not told him that the NZ PM was in London he would not have known. That applied to my niece as well who was equally ignorant of the event and she is an ardent Ardern fan.
    The image created here in New Zealand is nearly the opposite although if one analyses just what was broadcast here it lacked enthusiasm and continuity. Neither is the FTA with the EU all that it was cracked up to be.
    The conclusion one has to reach is that Jacinda Ardern is not rated as news worthy in the UK which tells you something!

    Cheers,

    …. ….”

    • What I find interesting about the media in general is their ability to absolutely hype certain issues and perspectives while totally ignoring others. Good reason to question who and what each outlet serves.

  4. Hugh PavletichMEMBER

    Rental supply spikes while demand dwindles … Sally Lindsay … Good Returns

    https://www.goodreturns.co.nz/article/976520460/rental-supply-spikes-while-demand-dwindles.html

    Across the country the number of properties listed for rent surged 12% to an all-time high year-on-year in May, according to Trade Me’s latest rental price index but demand fell 8%.

    There were significant regional differences in the figures. Wellington’s listings lifted 45%, followed by Marlborough 24%, Auckland 16% and Manawatu/Whanganui 5%.

    However, listings in Northland, Waikato, Hawke’s Bay, Taranaki, Nelson-Tasman, Otago and Southland dropped compared to a year ago, while there was no change in Canterbury.

    All regions apart from Canterbury and Southland had a drop in demand from prospective tenants, with the biggest declines in Nelson/Tasman, down 28%, Northland 19%, and Taranaki 15%. Southland, up 8% and Canterbury, up 21% were the only regions to see demand for rentals climb when compared with May last year.

    The rental market is mirroring the property for sale market in May, with nationwide supply up 48% year-on-year, while buyer demand dropped by 9%.

    Rents drop for the first time this year … read more via hyperlink above …
    .
    .
    Missed meals and constant stress: New Zealand’s cost-of-living crisis hits home … Eva Corlett … The Guardian

    https://www.theguardian.com/world/2022/jul/04/missed-meals-and-constant-stress-new-zealands-cost-of-living-crisis-hits-home

    House prices rise fastest in NZ, Reserve Bank says … Susan Edmunds … Stuff NZ

    https://www.stuff.co.nz/business/300628883/house-prices-rise-fastest-in-nz-reserve-bank-says

    Is New Zealand housing a sign of things to come for Australia? … Tarric Brooker … News com au / NZ Herald

    https://www.nzherald.co.nz/business/is-new-zealand-housing-a-sign-of-things-to-come-for-australia/KGT7W6AOS7QOEDFUCHHUYAVKVA/

    • SkepticviewerMEMBER

      Dont panic – Today it was announced that immigrants and their partners and dependants (Death-staring Grannies) could all have visas to stay and use the health system in NZ- what is left of it. So those rents should start going up up up and that increase in availability down down down — ahh good times for Luxton and his seven houses.

  5. Spoke with my elderly mother on the weekend. She had a friend who was admitted to Palmerston North hospital recently for some minor elderly ailment. And she caught COVID in hospital. Was transferred to the COVID ward and recounted to Mum how awful the experience was. Room was “freezing cold”, the nurses barely bothered to show their faces. Food came in oven heated paper bags, and was “disgusting”, and wasn’t cleared up for hours. From what I can tell, older Kiwis are developing a fear of hospitals, and they’re falling apart at the seems.

    One clear sign of how bad things are in NZ is when the PM spends all their time offshore. Jacinda is behaving true to electoral form.

    • Hugh PavletichMEMBER

      Peter … Sadly it is a cultural crisis across the broad public sector involving much more than just hospitals.

      Dr Oliver Hartwich, Executive Director of think tank The New Zealand Initiative touched on the issue last week in The Australian. Reprint here …

      Even mediocre would be easier to bear: How NZ lost its mojo … Oliver Hartwich … The New Zealand Initiative

      https://www.nzinitiative.org.nz/reports-and-media/opinion/even-mediocre-would-be-easier-to-bear-how-nz-lost-its-mojo/

      Missed meals and constant stress: New Zealand’s cost-of-living crisis hits home … Eva Corlett … The Guardian

      https://www.theguardian.com/world/2022/jul/04/missed-meals-and-constant-stress-new-zealands-cost-of-living-crisis-hits-home

    • kiwikarynMEMBER

      People forgot that Jacinda was never in the country during her first term. After being absent on maternity leave for the first year, the next two were spent travelling around the world. Winston Peters was effectively running the country, which is probably why things didnt fall apart as badly as they have under Jacinda alone. Its only Covid that prevented her from leaving but now that the borders are open again she’s back to her true form and is in abstentia. Thats because she cant show her face in NZ without protestors heckling her, while overseas she’s feted and heralded as some sort of model leader the West should aspire to. If only they knew the truth….

  6. Two reliable indicators of a change in government in NZ are the performance of the NZD and the housing market. Every change in government in the past 50 years has occurred about the time of weakness in both.

    • kiwikarynMEMBER

      Also that consumer confidence chart – every time confidence has hit levels like now, the Govt of the day was booted. Here’s hoping for an early election next year.

  7. Well, the Kiwi’s voted for that horse faced psycho, and they’re getting what they voted for.

    • – Disagree. If the Nationals were in power then they would have been clobbered as well.

  8. Hugh PavletichMEMBER

    Business confidence survey suggests ‘only way is down’ for economy, says ANZ … Susan Edmunds and Tom Pullar-Strecker … Stuff NZ

    https://www.stuff.co.nz/business/300629632/business-confidence-survey-suggests-only-way-is-down-for-economy-says-anz

    Declining business confidence and acute capacity constraints suggest the “only way is down” for economic momentum, ANZ economists say.

    The New Zealand Institute of Economic Research reported on Tuesday that its Quarterly Survey of Business Opinion for the June quarter showed business confidence had slipped to its lowest level since Covid first arrived in the country in March 2020.

    Despite facing uncertainty over Covid and rising interest rates, cost pressures on businesses were intensifying, NZIER said.

    ANZ economists Miles Workman and Finn Robinson said there was nothing in survey that would seem to stand in the way of the Reserve Bank raising the Official Cash Rate by 50 basis points both next week and in August, which would raise the rate from 2%, to 3%. … read more via hyperlink above …

    • Hugh PavletichMEMBER

      Building sector cost pressures: Stagflation risk as profits slide, new survey reveals … Liam Dann … NZ Herald
      (behind paywall)

      https://www.nzherald.co.nz/business/building-sector-cost-pressures-stagflation-risk-as-profits-slide-new-survey-reveals/7BSSOXN74UMFPBSZF4KKC56OAE/

      Profitability in the building sector is being squeezed as firms face rising cost pressure but are unable to pass that on to buyers, a new business confidence survey shows.

      The latest Quarterly Survey of Business Opinion (QSBO) survey conducted by the NZ Institute of Economic Research (NZIER) shows overall confidence now at its lowest since March 2020, when the pandemic first hit.

      It prompted ASB economist Mark Smith to warn that stagflation may be on the horizon.

      Stagflation is a state where the economy is suffering from high inflation and recession – the worst of both worlds.

      The QSBO for the June quarter made grim reading and offered “little to cheer optimists”, Smith said.

      “[It] depicted stagflation-like conditions for the business sector, with shrinking economic activity, still intense capacity pressures and soaring prices and costs.” … behind paywall … read more via hyperlink above …