Last week, Bank of New Zealand warned that “things could well and truly turn to custard” as the global economy is plunged into recession:
We can’t stress enough our fear that the rapidity of rate increases globally, coupled with the disastrous consequences of Europe/UK’s energy crisis, means things could well and truly turn to custard.
The way things are going it’s increasingly looking like a “when” not an “if”…
In our opinion, folk are now underestimating the likelihood of a global recession…
The RBNZ already leads the global tightening race, and, with 3.50% penned in for October, will already have contractionary settings…
The latest ANZ-Roy Morgan consumer confidence survey paints a worrying picture for New Zealand.
While overall consumer confidence improved marginally in September; albeit remains at recessionary GFC lows:
Still at recessionary levels.
The proportion of people who believe it is a good time to buy a major household item – the best indicator for consumer spending – plunged 8 points in September to -25:
“Good time to buy a major household item” portends sharp fall in retail sales.
House price expectations have also plunged to their lowest level since the very beginning of the pandemic:
New Zealand house price expectations plummet.
Like Australia, household consumption is the biggest driver of New Zealand’s economy. Thus, the prospect of a sharp fall in consumption spending on the back of rising mortgage rates and falling housing prices raises the clear and present risk that the economy will be plunged into recession if the Reserve Bank continues hiking aggressively.
As noted last week by ANZ, nearly half of borrowers are on fixed rates of less than one year, with around one quarter also on one-to-two year fixed rates:
Many Kiwi borrowers have yet to be impacted by rate hikes.
Therefore, a large share of borrowers that purchased homes at rock-bottom rates over the pandemic will soon be refinanced at much higher levels. This will add to the consumption shock facing the economy as household disposable income is squeezed even harder.
A global recession looks certain for next year on the back of central banks’ uber aggressive monetary tightening and rising energy costs.
If the Reserve Bank is not careful, and tightens much further, it too will plunge New Zealand into a consumer-led recession.
