This started witn an interaction at the bank. We were trying to set up a joint account — although we have a shared working account, if either of us sets up a new investment account it is in that person’s name. The maximum interest rate available, by the way, was 0.85%. Mortgages are now at 2.29% for one-year terms. And house prices are going up. Despite the economy not.
We said the truth: we rigntsized our house, selling something beautiful and buying a fixer upper. The bank workers was from Mexico, and she can’t understand (a) why houses are so expensive here (b) how expensive it is to build and renovate. She and her husband are renting, but thinking of finding somewhere that will allow her to be at home and enjoy the kids. Because here, all young people are pressured to get on the housing market in the middle of a bubble.
I’ve seen the pain that caused in Canada. Up close and personal. In the last global financial crisis.
The fall is somewhat bigger than had been expected, although economists had warned that a number of outcomes were possible.
The latest drop means that, according to Stats NZ, GDP declined 2.9% over the year to December 2020, the largest annual fall ever in GDP for New Zealand – as a result of the lockdown.
The figure that the economists look at closely is the latest quarter compared with the same quarter the previous year. On that basis, economic activity was 0.9% lower in December 2020 compared with December 2019.
One feature in the latest GDP figures was a fairly large (8.7%) fall (from very high levels) of the construction sector.
Kiwibank chief economist Jarrod Kerr said the fall in construction over the quarter “was much deeper than expected”.Interest.co.nz
So let’s see what the banks are saying this week. All Banks are bastards, but the functional big four in NZ are Westpac, ANZ Bank, BNZ, and ASB. All are owned by bigger corporate entities in Australia or the UK.
After rebounding sharply post the Covid lockdown, the tourist-less summer has since weighedWestpac, 15 March 2021
on the economy. So much so that we expect GDP to decline over the December and March
quarters. At the same time, the housing market has continued its red-hot run. However, an
eventual lift in fixed-term mortgage rates should be enough to slow the housing market, and
ultimately send it into reverse.
The December quarter was just round one of a clash between two economicANZ Bank.17 March 2021
heavyweights: housing-induced domestic demand vs a closed border. And
today’s data suggest it’s been a close match, with both sides landing some
heavy blows. Overlay a significant degree of quarterly volatility, and the fact
that the economy contracted in Q4 doesn’t really challenge the narrative that
New Zealand’s recovery has been remarkable to date.
Based on today’s data, we’d say odds favour a pretty flat print in Q1, as we
should see some of the recoil dynamics reverse.
International tourist receipts typically peak in Q1 – that’s NZ’s
largest export earner out for the count until borders reopen (which we assume
will be early 2022, though we may see some limited reopening before then).
Conversely, the very strong February REINZ data shows housing momentum is
looking to come straight from the shoulder in Q1, and that presents some
upside risks to our broader economic outlook (albeit with its impact on activity
limited by capacity pressures, which appear to be biting rather acutely).
If closed border impacts dominate housing more than we expect, today’s data
could mark the beginning of a technical recession. But recession is a growth
concept that we shouldn’t get hung up on in a world of massive volatility in the
We’ll be recalibrating our GDP outlook in light of both today’s data and a
stronger near-term housing outlook (keep an eye out for tomorrow’s Weekly
Data Wrap). But we’re talking forecast tweaks, not dramatic changes to the
fundamentals or the outlook for underlying momentum.
In barely moving, the financial markets have given today’s “weak” Q4 GDP outturn a break. And fair enough. NotBNZ, 18 March 2021
because the reported 1.0% decline – which was worse than market expectations for a 0.2% increase – was dodgy in
the way it was measured. It wasn’t. Rather, there was always likely to be tolerance of any slight pull-back in GDP,
after the massive 13.9% catch-up in Q3, which snuck annual growth up to 0.2%.
Formally, we expected a 0.4% gain in Q4 GDP. But as we stated in Monday’s Markets Outlook “…like for Q2 and Q3, the error bounds (on this) are unusually large. We have almost as many indicators signaling a decline in Q4 GDP as an increase. Would we be floored to see a decline in Q4 GDP of as much as 1%? No.” So, there we have it.
That said, there is still use in figuring out what we misjudged in the Q4 GDP components. On the production side, a big chunk of it was construction. More precisely, it was a 7.5% drop in “other” construction, making for an
annual decline of around 3%. This sub-category covers infrastructure, which is often volatile quarter to quarter. But it’s also influenced by public spending, which we don’t believe, from Q4 GDP, is genuinely starting to trend down.
Q4 GDP was much weaker than expected, falling 1% qoq, vs. ASB’s forecast of a -0.1% decline and the market median expectation of a 0.1% increase and Reserve Bank of New Zealand (RBNZ) February Monetary Policy Statement (MPS) forecast of zero growth. Q4 GDP is 0.9% below year-ago levels, also much weaker than expected. The size of the Q4 fall raises questions around the true extent of NZ’s economic performance through the pandemic, but also raises questions over how strong H1 2021 growth will be. The absence of foreign tourists had a greater negative impact on Q4 GDP than previously estimated. This was compounded by the possibility of capacity constraints holding back the stronger parts of the economy, particularly in the construction sector. The implications are mixed, as some sectors are constrained by weak demand but others may be constrained by supply.ASB 18 March 2021
NZ’s GDP growth over 2021 is likely to remain muted, largely due to the impact of closed borders on the economy via tourism and population growth. However, prospects for 2022 have improved in large part due to the early signs of success in global vaccinations to date and clarity around NZ’s own vaccination timetable. From this point on, businesses should become more confident on the outlook and look to take action on employment and investment plans over the coming year
One of these banks is more pessimistic. Ironically, it is the one the NZ Government uses. There is a lot of hand waving, saying that things will ramp up again. So let’s consider things we are seeing around town.
- There are more shops and cafes closed at the time when students still have parental money, and have not cut their budget. My town is based around the university and hospital, and they still employ people: we have problems getting the people we recruit into the country.
- We are renovating, and we can get tradies. Kea loves this, because she wants things to progress fast. A year or so ago you waited weeks for a slot when the tradies could come: now the biggest delays are at the council, where resource consent is certified by people working at the speed of stoned sloths.
- There is no new money in the budgets at the university, hospital… and the council has significant pressure not to increase rates.
- The price of things that matter — fuel, food, rent… is going up. Which is leading to calls around regulating such.
I’m telling the kids to go rural, save their dollars and buy in 18 months. The average mortgage in NZ is 700K, which is ten times the average wage. Using the Westpac mortgage calculator, you are paying $1339 fortnightly for that at 2.89% (current best rate) — and there is no deductions for mortgages in NZ., which increases to 1518 a fortnight at 3.89%.– an increase of $179 every two weeks. Since most Kiwis are paid fortnightly, that is a pretty hard ask on the budget.
I can recall mortgage rates of 25%. Admittedly, I was young and renting then. This is not a time to leverage. The economists are now not all positive. That, in all times, is a storm warning.