THE HAPS
Free Press is back after the long sunny summer (long may it continue). We hope you and your family enjoyed the holiday season. ACT has started the year strongly, and we look forward to delivering New Zealand’s best political newsletter each Monday.
On Wednesday we launched the website for our campaign to deliver on Te Tiriti's promise of equal rights for all. If you haven't already, visit treaty.nz and sign up to support the campaign.
ZOLLNER'S BIG CALL
Sharon Zollner is Chief Economist at New Zealand’s largest bank. Like most Chief Economists, she assembles formidable amounts of data into a cogent narrative, so when she says interest rates are going up, it’s wise to consider she might be right, at the very least.
Last week Zollner predicted that the Reserve Bank will increase the Official Cash Rate twice from the current 5.5 per cent. Up to 5.75 per cent this month and to six per cent. Previously nearly everyone thought the Bank was done hiking and their next change would be dropping rates.
The OCR affects mortgage rates but also everyone else’s cost of borrowing from small businesses to the Government with its recently acquired debt. Putting it up would make everything harder for everyone, which is basically the idea. Stop spending to kill inflation.
The silver lining in Zollner’s predictions come at the end. Zollner predicts that rates will return to the Reserve Bank’s ‘neutral’ 3.5 by next year as originally planned. Her main prediction is that the Reserve Bank will use shock rises to scare people out of spending.
The rest of the world is back to pre-COVID norms and Americans are eyeing a ‘soft landing,’ but Zollner notes non-tradeable inflation in New Zealand was stronger than expected last quarter. Another word for non-tradeable inflation is Government spending.
Reasonable people can take three things out of Zollner’s big call, if she’s right.
One. It’s going to be a tough winter. Tourism is not back to pre-COVID levels. Construction is wobbly. Real Estate agents are rushed off their feet preparing homes for what may be an uncertain market. Retailers tell Free Press they’ve had the worst January in memory.
The Reserve Bank trying to give shock treatment as Zollner forecasts would certainly add to all of the above for a very tough winter.
Two. The Government’s planned spending restraint can’t come soon enough. After six years of Grant Robertson spending like there was no tomorrow, New Zealand now has a Finance Minister and Government asking the same questions households and business ask: “where can we save money?”
Three. The regulatory agenda is key. For the first time we have a Government putting serious effort into regulating well. New Zealand Governments have good transparency and process around spending (at least we know they’re spending too much), but regulation is the wild west.
Stuff costs too much because we’ve made it expensive to do stuff with excessive regulation. If the goal is to rebalance the economy away from Government excess, then making it easier to work save and invest – to produce more valuable stuff – is the complimentary friend of less Government spending.
Luckily we have a Government that is committed to supply side reform, not as much as ACT would be, but more than it would be without ACT.
|
That's it for this week, be sure to stay tuned next Monday In the meantime, please consider sharing Free Press.
Not Subscribed? Sign up >here< |
