From a few concerns about the effects on Chinese tourism in late January to a full-blown pandemic and lockdown in New Zealand, the COVID-19 crisis has evolved rapidly over the last two months. We communicate just how quickly the economic ramifications have unfolded and examine how things might play out for the economy over the next 1-2 years.
Infometrics’ latest forecasts suggest there is little reason to be feeling more upbeat about New Zealand’s economic prospects, despite some improvement in confidence surveys over the last few months. The company expects growth to regain some momentum over the next year, but it believes nothing has changed to help the economy avoid mediocre results beyond 2021.
Economic growth, inflation, and interest rates around the globe remain significantly lower than they were prior to the 2008 Global Financial Crisis. The limited success of efforts to stimulate the economy over the last 12 years are reminiscent of the Japanese economy’s stagnation during the 1990s. Are other developed economies, including New Zealand, at risk of suffering the same malaise as Japan over the medium-term?
House prices rose almost 50% during the last decade over and above consumer price inflation. It would be brave to expect a repeat performance over the next 10 years, although we might have felt the same way looking at the market 10 years ago, after the 60% lift in real house prices during the 2000s.
There’s a saying that it takes money to make money. There are, of course, exceptions to any rule, but this saying generally aligns with Thomas Piketty’s thesis (Capital in the Twenty-First Century) that if the rate of return on capital exceeds the economy’s growth rate, then wealth will gradually accumulate in the hands of fewer and fewer people. That is, if investment returns are growing faster than the economy, this wealth accumulates.
Infometrics Christmas Carol 2019 – sung to the tune of Santa Baby (written by Joan Javits and Philip Springer). Originally sung by Eartha Kitt, we used the version by Madonna
New Zealand’s housing market isn’t functioning as well as it should be, with higher house prices, rising rents, falling home ownership, and a lack of housing options. But just how large is the housing shortage that we continually hear about?
The global economic slowdown will continue to be a drag on New Zealand’s economy over the next year, according to Infometrics’ latest forecasts. Escalating tariffs as a result of the trade war between the US and China have seen global growth expectations steadily downgraded. China, New Zealand’s largest export market and the major engine of the global economy over the last decade, is growing at its slowest rate in 30 years. All these factors mean that next year the world economy could record its slowest growth since 2012.
Between September 1977 and March 1991, Japanese house prices rose 83% in real terms, or at an average real rate of 4.6%pa. Then things got ugly…
Retirees who own their own home are generally able to live with more financial comfort than those who are renting. It’s not rocket science – if you’ve paid off your mortgage while working, then your accommodation costs in retirement are close to zero, apart from a bit of necessary spending on rates, insurance, and maintenance. Over time, renters tend to become even more disadvantaged because rents often rise faster than incomes.