Is the NZ economy heading for a hard landing? As the country awaits the presentation of Budget 2022, the omens are not good.
The ANZ Bank, in its latest quarterly economic forecast, says many commentators are talking about the risks of a recession. It’s a valid concern, as it is clear that the impact of hikes in the official cash rate (OCR) has already reverberated through the housing market through higher mortgage rates. The bank’s economists say this adds an extra layer of concern over and above fears about the cost of living and sustainability of asset prices (via KiwiSaver balances and the like).
“However it is imperative that the Reserve Bank gets on top of inflation quickly. Going hard should, in theory, lessen the need to hike by more in total and that has been a key RBNZ message.
“ Raising rates aggressively while consumer confidence is around record lows and housing retreating might seem counter-intuitive, but the policy choice is between some pain now or probably more pain later. Indeed not hiking aggressively now would itself be risky.
“If bond market participants sense that central banks are going soft on containing inflation, long-term interest rates are likely to rise even more sharply over time as investors seek inflation compensation. This is what happened in the 1980’s and it is crucial that this is avoided this time around so as to avoid a deep and prolonged period of stagflation.” Continue reading ““Considerable uncertainty” clouds the outlook as Robertson prepares to present 2022 Budget” →