A brighter tomorrow? The NZ economic outlook for 2024
Things are looking a lot rosier than this time last year – with some major caveats.
Mōrena, and welcome back to The Bulletin for 2024. It’s Monday, January 15, and this edition is written by Catherine McGregor.
In today’s edition: Auckland Light Rail goes to the great transport project graveyard in the sky; How New Zealand can turn the ship around on infrastructure; Wellington prepares to move to level 2 water restrictions on Wednesday. But first, the cost of money to our banks is way down. When will that translate into lower mortgage rates?
Inflation is coming down, slowly
With the country still rousing itself from its holiday stupor, news remains thin on the ground. So this week we’ll be looking at what lies ahead for New Zealand in 2024, starting today with the economy. At the start of the month the UN’s World Economic Situation and Prospects report noted that housing shortages – and the accompanying higher rents – would continue to slow NZ’s attempts to curb inflation. The UN forecasts NZ will end 2024 with inflation at 3.4%, then drop to 2.6% in 2025. That’s less optimistic than Treasury, which is forecasting inflation back within the Reserve Bank’s target 1-3% range by the end of this year.
Where to for interest rates?
As inflation drops, so too should we see falls in interest rates. Despite the tough talk from the Reserve Bank’s Adrian Orr who said in November that mortgage rates need to stay where they are “for a long time to come”, the consensus among economists is that interest rates have peaked. Now the questions are when they’ll start coming down, and how fast. Swap rates – the cost to banks of borrowing money at a fixed rate – have fallen considerably in the last few months, giving banks a “margin blowout” on the money they currently lend, says commentator Tony Alexander. David Cunningham of mortgage brokers Squirrel thinks those margins give banks a lot of room to manoeuvre. “I would be surprised if we don’t see most fixed interest rates down between 0.5% and 1% by March,” he tells Stuff.
Inflation and migration the top two economic issues, say experts
Not surprisingly, inflation is one of the most important issues in 2024, according to economists surveyed by the Herald’s Liam Dann (paywalled). While tradeable inflation – that caused by imported goods such as oil – is already returning to normal, non-tradeable cost prices (more specifically, housing) is the “sticky part”, says ASB’s Nick Tuffley. That stickiness is exacerbated by record-high migration, which the economists voted the number 1 economic issue for 2024. The net economic outcome of all those new residents is hard to forecast, writes Dann. “On the one hand, adding more workers is disinflationary, taking pressure out of the labour market, on the other, adding more consumers is inflationary. More people means more spending.”
Red Sea crisis jeopardising global economic revival
All told, the outlook is a lot more positive than this time last year – with one huge caveat. The crisis in the Red Sea, where US- and UK-led forces (backed by nations including NZ) are bombing Houthi rebels blocking key shipping routes, could shatter hopes of a global economic recovery, according to the World Bank. Bank economists say the situation “now threatens to feed through into higher interest rates, lower growth, persistent inflation and greater geopolitical uncertainty”, the Guardian reports. As a result of both the Red Sea crisis and severe drought in the Panama Canal, shipping rates have “jumped almost 8% week-on-week, reaching their highest levels since October 2022 and almost double November levels”, BusinessDesk’s Brent Melville reports (paywalled). That’s a lot, though for context they jumped by a humongous 400% at the height of the Covid pandemic in 2021.
The Spinoff is powered by its supporters
In 2023, Spinoff readers funded some of our most beloved, well-read, impactful work. Help Me Hera, The Cost of Being, powerful longreads, Election 2023 coverage, laugh-out-loud satire, Auckland stories, Wellington stories, Christchurch stories and everything in between were powered by Spinoff members and donors. If you did support us, thank you from all of us at The Spinoff. If helping fund well-crafted and insightful journalism is on your list for 2024, donate today or sign up to become a Spinoff member.
RIP Auckland Light Rail project, 2015-2024
Transport minister Simeon Brown confirmed yesterday that Auckland Light Rail is officially cancelled, with an immediate stop work notice issued to Crown-owned Auckland Light Rail Limited. Public transport advocates expressed their disappointment at the news, which had been expected since National put its 100-day plan in motion following the election, but many said the previous government’s expensive time-wasting – including a much-derided change of plan that would have sent trains underground – was ultimately to blame. “If the Labour-led govt had just stayed with the surface route like every transport nerd wanted, we'd just about be riding it now,” tweeted Russell Brown. Yet another Brown – Auckland mayor Wayne – told BusinessDesk’s Oliver Lewis (paywalled) the disastrous outcome would have a chilling effect on light rail for years to come. “It’s certainly set things back many, many years,” Brown said. “It was a clear example of how to completely stuff everything up.”
Hard fixes for a critical infrastructure crisis
New Zealand’s massive population growth over the last year makes investing in infrastructure now all the more vital, writes Infometrics chief forecaster Gareth Kiernan. The current wide-ranging problems with our infrastructure can be traced back to a period of under-investment between the mid-1980s and mid-2000s, he says, which was never addressed in subsequent years. “The implicit prioritisation of short-term profits over longer-term sustainability, associated with privatisation, has seen various parts of this country’s infrastructure networks in crisis at different times over the last 30 years, whether it be electricity supply in the 1990s, rail in the 2000s, or water and wastewater now.” Infrastructure decision-making in recent decades has been undermined by “ideological biases from both the left and right” that make future work plans “uncertain and lumpy”, he says. It’s imperative that New Zealand prioritises better long-term planning to utilise our relatively meagre financial resources and get away from the “increasingly ad hoc” project pipeline of recent years.
Click and Collect
The grim reason why The Warehouse is able to sell a dozen eggs for $5
As the Wellington metropolitan area prepares to move to level 2 water restrictions this Wednesday, the council warns there is a 1 in 3 chance of level 4 restrictions by early next month.
Taiwan’s new president is loathed by China. What will it mean for relations between the two?
Wonderful words (by Charlie Mitchell) and pictures (from the national archives) in this Sunday Star-Times piece about the 1906 International Exhibition in Christchurch.
New Zealand “dodged a bullet” after a hot, dry weekend saw no major scrub or bush fires.
Denmark’s King Frederik X has been crowned.
Feeling clever? Click here to play 1Q, Aotearoa’s newest, shortest daily quiz.
Are online tools like Google Lens and DermAssist worth using to diagnose your mystery skin condition? Rachel Judkins asks the experts. In our summer reissue series, Alex Casey dives into all the juicy penguin drama at the National Aquariaum. Beehive staff exiting the building give Sarah Maguire their brutal, burnt-out advice on how not to end up like them. Chris Schulz looks back at the short life of the Footrot Flats-themed fun park billed as the “Disneyland of the Pacific”. Anna Rawhiti-Connell celebrates the simple pleasure of sitting in your parked car doing nothing. Dylan Cleaver reports on the years-long fight to have an ex All Black’s CTE recognised as a rugby-related injury by ACC.
Sporting snippets
The Black Caps have a 2-nil series lead over Pakistan after beating the visitors by 21 runs in Hamilton yesterday.
Novak Djokovic has triumphed after a four-hour battle against Croatian teenager Dino Prizmic in the third round of the Australian Open.
Wellington Phoenix have reclaimed their A-League lead after beating Perth Glory in a “seven-goal thriller” in Parramatta.
Got some feedback about The Bulletin, or anything in the news? Get in touch with me at thebulletin@thespinoff.co.nz.
If you liked what you read today, share The Bulletin with friends, family and colleagues.
Absolute BS