The Clock is Ticking!

“Government is not the generator of
economic growth, working people are”

Phil Gramm

The clock is ticking on this Country’s malaise as we get closer to 12 months out from the next Election. That being said there now appear to be some green shoots appearing, with the rural communities benefiting from the strong export prices received from pretty well all our agricultural and horticultural produce, and the effect of lower interest rates being felt, at long last. The main centres are lagging behind any recovery, and comprising the bulk of the Countries population, means the overall mood is still quite pessimistic. The Government are finally enacting a number of measures to drive economic growth, these being-

• Loosening the Capital Retention requirements for our Banks.
• Promoting a number of immigration investment schemes to high net worth people offshore.
• A loosening of offshore purchase rules around high value residential property, with high net worth offshores investors now able to purchase a residential property in this Country, valued in excess of $5 m.
• Plus RMA reform in an attempt to remove red tape and reduce costs.

There are also a number of other factors which will contribute to growth -lower interest rates plus the pull back in housing prices, leading to housing affordability is at it’s highest level since pre-covid, plus offshore the effects of Trump’s tariffs are predicted to lower World growth, resulting in lower import/export prices and a stronger NZ currency. These factors will also help reduce onshore inflation. This Countries’ Terms of Trade hit a record for the last quarter, another bit of unreported good news.

The state of Australia’s economy has a large bearing on this Countries “Brain Drain “as greener pastures and sometimes better weather are only 3 hours away. Their left leaning Government and the Australian Reserve Bank have pushed a different approach to combating inflation, resulting in a more buoyant economy, as this Counties Reserve Bank pursued a more aggressive, and earlier, tightening of monetary policy. This has resulted in higher unemployment rates and a sharper downturn in growth. However, New Zealand is starting to reap the benefit of this, as inflation has now dropped back faster, meaning the RB can cut rates quicker, whilst Australia have only seen 0.75% bps rate cuts, ours have reduced by 250bps, with a likely further 0.50% before the end of this year.

The Australian State and Federal Governments continue to borrow heavily, which underpins their inflation rate, now running at 2.8% annually. As this Country has experienced, a government can borrow extensively in an attempt to keep voters happy, however at some point these borrowings need to be repaid. New Zealand’s GDP Growth is now expected to outstrip Australia’s, reaching 2.4% in 2025 and 3.1% in 2026, whilst Australia’s has now been downgraded to 2.0% and 2.1 % respectively. Hopefully the hard and fast approach by our Reserve Bank is starting to bare fruit.

The tourism industry, which was our largest earner prior to Covid, is still struggling to recover to previous levels. Air New Zealand has recently announced reduced profit’s (down 15%), and aircraft sitting unused due to lack of demand, whilst it’s major competitor in this part of the World, Qantas, reports record profits (up 28%) . Another concern is the cruise industry appearing to abandon us due to a mix of rising costs, red tape, and regulatory uncertainty. The 23/24 year saw this industry contribute $1.37 B to our economy and employ 10,000 people, whilst bookings for the 25/26 year are down 40%, and obviously these cruises are planned and sold 12 + months ahead. This will undoubtedly hurt a few local operators. The fact that we tend to attract the older, less environmentally friendly, ships to this Country and that there are now less vessel’s cruising out of Australia, is the major issue. Apparently, the cruise industry brands us “No Zealand“, something we need to rectify.

Global has recently met with a number of new financiers actively looking to grow the size of their books here, some of these being NZ based, whilst a couple of Australian funds recognize that our market is improving and have been knocking on our door. We had a meeting with one fund who are currently seeking to lend to our agricultural/horticultural industry, with the knowledge that the medium- term outlook for these industries is strong.

Most non-Bank funders are reasonably liquid with appetites for deals very much dictated to by their current level of exposure to an industry or location, and in a lot of cases the levels of nonperforming loans on their books in a particular location or to certain industry, be it development, residual stock, rural etc.

Global Pacific Capital has recently been involved in a number of transactions where the existing funder is looking to force repayment, whether via a Receivership, PLA, or issuing a Demand. These are generally after them serving notice on the clients of their intentions. Most of these funders only end up in this situation as a last resort and if the borrowers had been proactive in seeking a debt restructuring and /or sell down they would have had a better chance of retaining their equity in a transaction. If a funder sees a respected 3rd party involved in driving a refinance they will often work with the borrower and broker to achieve a positive outcome for all. Inactivity by borrowers and broken promises tend to push funders to take a more aggressive stance.

The non – Bank market is still very liquid, so if you or your clients have a transaction to discuss with us, please get in touch.