From Covid To Inflation

From Covid To Inflation

“The lesson is clear. Inflation devalues us all “

Margaret Thatcher

As we get towards the end of what has been a tumultuous calendar year, we have seen some industries flourish and some find the going very tough. Rampant inflation has hit everyone in the pocket, and the signs are that this will continue to be a factor into the first half of 2023. The opening of this Countries borders saw a bounce back in the tourism and hospitality sectors, resulting in positive GDP growth for the last quarter, thus avoiding a technical recession. The severe staffing restraints on these industries mean they are a long way off being able to perform at pre-Covid level’s, with the Governments laboured and confused non-resident working visa programs meaning there is no solution in site. This while other Countries are actively attracting offshore workers to fill their shortages.

The Education sector is another industry that will feel the income restraints from NZ being too slow to open up to overseas students. Prior to Covid, overseas students contributed large incomes to both Education providers, accommodation providers, and business’ in the main centres. The lack of these students is not something that will be rectified in the short term, as most will have committed to other Countries, Australia in particular, and that can be a 3–5-year course commitment.

The proposals put forward by Labour, and I would suggest largely supported by the National Party, to lead the World in lowering agricultural emissions, will undoubtably lead to higher food prices. This Country is looking to reduce our Carbon Emissions from 0.17% of the Worlds emissions to 0.13%, it is predicted agricultural production will reduce by somewhere near 20%, with beef farming higher and dairying less severely impacted with large chunks of agricultural pasture being replaced by trees. The Governments own modelling had assessed that the reduction of land being farmed would have reached the required 10% reduction by 2030 without the proposed taxes, that is required under emissions commitments anyway. The fact James Shaw is attending a large climate change forum appears a real driver behind these announcements. I recently heard a good story, referring to politics getting overly involved in Countries primary industry. The Chinese Government introduced the Four Pests law in 1958, and as part of their intention to increase agricultural productivity they introduced a program to cull Sparrows, as each Sparrow was suspected of consuming 4 pounds of grain per year. The program caused an ecological imbalance, as the Chinese farms were then overrun by Locusts, causing the Great Chinese Famine of 1960, at which point the Government woke up to this and stopped culling Sparrows, to replace them on the Four Pests list with Bed Bugs, and actually imported 250,000 Sparrows from Russia. However, the damage to Chinese agriculture lasted for years.

The recent local body elections have seen a Nationwide move back to the right, which despite low voter turnout looks to reflect the mood of the Country as a whole. Grant Robertson recently stated that 2023 could be a rocky year, both internationally and locally, but his comments that the Governments deficit of $9.2 billion was half what they had budgeted for indicates the purse will be opened next year, in an attempt to reverse current poll swings. The recent re-emergence of Winston Peters and NZ First will be interesting to see play out, particularly as he is not ruling out getting back into bed with Labour. This could affect his support from the traditional NZ First voters who made him pay for this decision in 2020.

The Country, and the World, is struggling to combat strong inflationary pressures, with the most recent quarters number of 2.2%, 7.2% annually, a shock to most economists. The low unemployment rate which is being exacerbated by our workforce numbers declining as people leave for greener pastures, is a driver behind wage growth driven inflation. Employers are having to pay more to employ new employees and increase salaries of existing employees to retain them. This in turn gets pushed through to the products they produce or the services they provide.

The financing markets are still active, with demand outstripping supply, as the non-Bank lenders pick and choose transactions, they are comfortable with. The demand for sub-division, land bank and development funding remain high, and with the mainstream Banks vacating this space we are seeing a lot of these non-Bank funders tight for funds, including some of the overseas funds we deal with. The signs are that this situation will continue into the New Year, with funders exercising a higher degree of caution in this space, and clients need to be well prepared to grab funds when these lenders have liquidity available.

As we wind down to Xmas, we all hope the spectre of a new Covid wave isn’t going to impinge on the almost return to normal. Wishing you a Merry Xmas and hope you have a great Covid free break, as this is our last newsletter of the year.