“It’s a Recession when your neighbour loses their job.
It’s a depression when you lose yours.”
Harry S Truman

The most recent quarterly inflation figure, annualised to 3.3 %, shows that the Reserve Bank appears to have broken the back of it. We are of the opinion that economic activity was a lot more constrained than quarterly figures were portraying, due to the large price increases coming thru in what tend to be more one-off costs, such as rates, insurance and services such as power and water. The cost of electricity and certainty of supply is now becoming an Achilles heal for the country, as the Green party driven blanket ban on fossil fuel mining and exploration bought by the labour government starts to bite. The lack of competition and investment is now being felt as power prices have risen 25–40% this year, with more pain due to come for households in the next few months.

It is estimated 40,000 homes had their power turned off due to non-payment of bills in 2023. There are an increasing number of businesses, most of whom are also large employers, that are large electricity users that are talking of closing or suspending production and it appears likely to get worse. The fact we are now importing coal and talking of having to import gas, with the abundance of both which the country has, it is a sad indictment of the previous policies. It is agreed that we should pursue the renewables route, however you don’t do away with the ability of existing facilities to generate electricity, or access fossil fuels economically without having the alternatives in place. There now appear to be some green shoots appearing, as the certainty of interest rates dropping spurs purchasers to act, with Real Estate agents reporting a lift in enquiry coming through in July.

In our July newsletter, we advised ‘we don’t expect interest rate cuts until November 2024, at the earliest’, with most economists then predicting the first cut coming at various times in 2025. Well, we all got that wrong, with the Reserve Bank having already cut far earlier.

That said, we don’t want to end up in the position of Australia, where it appears they have loosened the shackles a bit early, and it appears in the balance as to their central Bank having to consider increasing rates again, with their annualised inflation sitting at 3.6%. The past couple of weeks have seen Stock markets tumble on US employment data indicating they may be moving into recession territory, and possibly the increased risk of the expansion of hostilities in the Middle East. The World almost seems to have forgotten about the war in Ukraine.

The mood out in the business community is that most industries are doing it tough. The construction industry has already experienced a rationalisation, with we would suggest more firms to fall over. Hospitality is now seeing the closing down of several long-standing restaurants, and our insight into the accommodation sector is showing Hotels and Motels in most regions are struggling, as overseas tourist numbers have dropped off, due to our winter season and the Olympic’s in Europe, and also local business’ look to trim business travel. However, Christchurch and Queenstown should see a lift as snow arrives for the ski fields. The mixture of reducing interest rates and a lower NZ dollar mean that there should be an uplift in the Countries economic activity, as our exporters feel the benefit of this and the increased activity starting to appear in China. This Countries very strong reliance on China for exports means the Coalition need to tread wearily when taking sides in the current push and shove between the United States and China, which you would suggest will worsen should Trump win back the Presidency.

This Country still suffers from a boom to bust economy, and the Reserve Bank, in conjunction with the last Labour Government, need to take responsibility for this. The recession, which was induced by the Reserve Bank, is a result of an over stimulation of the economy, driven by that same Bank, in partnership with Labour. Those business’ that are no longer around, and the large list of New Zealanders who have emigrated to greener pastures, will have long forgotten the growing economy of 18 months ago. Next, we will see it reported that there is a shortage of housing, which is fueling property price increases, reappearing in the medium term, due to a lack of supply. The On/Off nature of property development is an ongoing issue, as New Zealand has one of the developed world’s longest property development time spans, and costliest to get from Grennfields to completed homes. As with most things in life- timing is everything, and those who have the equity to develop during the slow periods will reap the rewards of having product to move when demand has turned. The severity of this slowdown would suggest that the demand turnaround will be quite strong.

Global Pacific Capital is experiencing an upturn in enquiry. We have assisted borrowers and other brokers to successfully obtain their funding requirements through professional presentation of the facility’s sought in a format where our funding sources can clearly identify an applicants risks in the submission and can work with us to provide commercially, realistic terms and conditions that are acceptable to all parties.