Infometrics July newsletter
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July 2021

New Zealand’s economy is in a stronger position, even as the Delta COVID-19 variant rages across the world. This stronger economic position, combined with sustained supply chain issues, and a change of direction for the Reserve Bank, means the end of super low interest rates. Chief Forecaster Gareth Kiernan and Principal Economist Brad Olsen examine the latest data, and change tack on interest rates, picking possibly a 50bp hike in August.

Our latest forecasts, published earlier in July, underscore the challenges we note around a stronger economy. As Gareth points out, the current level of activity might be unsustainable.

Senior Economist Rob Heyes analyses the circular economy concept, what it would mean for different sectors, and what policies would be needed to implement a shift in direction.

Brad then details changing trends in migration, finding that it’s not people coming to New Zealand, but rather people not leaving, driving current trends. And to round out the month, he also looks at how much each industry pays on average, and what these pay rates mean for firms gripped by labour supply problems.

Changing tack on interest rate expectations
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Inflation has picked up rapidly and is set to spike higher in coming months, and the Reserve Bank has confirmed a strong tightening bias in its monetary policy settings. As a result, we have changed our outlook for monetary policy. We are now picking an increase in the official cash rate (OCR) next month, and we see potential for a rise of 50 basis points.
Are more Kiwis coming home, or just not leaving?
Migration patterns around the world have been upended due to the COVID-19 pandemic, with border restrictions, COVID-19 outbreaks, and different economic performances changing where people move to and from. New Zealand’s migration patterns haven’t escaped this upheaval, with net migration collapsing since the pandemic emerged. But with the world starting to reopen, what might be in store for Kiwis both here in New Zealand and overseas? Far from being a brain gain, New Zealand might face a brain drain of current talent.
Moving towards a circular economy
In its recent advice to government, the Climate Change Commission noted that a more circular economy has the potential to reduce greenhouse gas emissions. Reading this, you could be forgiven for thinking the circular economy is just one part of the decarbonisation jigsaw.
Media Release: Pressures mounting in NZ’s overstimulated economy
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The New Zealand economy is growing at an unsustainable rate, fuelled by the massive fiscal and monetary stimulus applied over the last 16 months in response to the COVID-19 pandemic. Infometrics’ latest forecasts predict that economic growth will climb to over 5%pa this year, with growth in household spending reaching 10%pa. These strong demand conditions are being accompanied by a wide range of cost pressures that are creating serious inflationary risks, with the burst of demand unlikely to hold up.
Chart of the Month: Who gets paid what?
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Labour market pressures are building across New Zealand, with rising employment, higher job ads, practically non-existent migration, and difficulty finding workers. New Zealand’s strong levels of demand, coupled with a restricted supply (of both workers and materials), means that businesses are having to pay more for a limited pool of talent.