2019: The economy in a nutshell
What lies ahead for our economy this year?
Economists have been pleasantly surprised with the way the country’s economy is trucking along. Growth is stronger and lasting longer than expected, as seen in the Government’s most recent fiscal update.
But rising wages, Wall St jitters, and trade war fears could put a dent in our exports and strong employment, begging the question: will 2019 be the year the wheels fall off?
Real estate
In New Zealand, the property market is an essential plank in the economy.
Last year Auckland’s property market – our biggest and arguably most important – started losing steam, as it inevitably had to, but the property market as a whole is far from headed backwards, according to Ryan Mitchell, national manager of Century 21 New Zealand.
Low interest rates, softer lending criteria and Auckland’s ongoing under-supply of housing will help to insulate us from the growing opposing forces, he believes.
The risks include a slowdown in Australia’s red-hot market, and overseas volatility, which affects our bank’s lending rates.
Mitchell says many economists and commentators are fairly positive about this year’s real estate market.
But ‘‘in saying that, if you were wondering whether to buy or sell this summer or next, I would argue the time to act is now’’.
‘‘Prices are holding up well for vendors while for the likes of first-home buyers there are greater opportunities out there.’’
Mitchell says it’s also worth remembering New Zealand is not one real estate market, a fact borne out by the catch-up being enjoyed in regional markets.
He predicts significant differences will continue between each of the regions and cities this year. Also on the comeback trail are first-home buyers. ‘‘In fact, arguably it could be the best year for first-home buyers we’ve seen for over a decade when it comes to buying opportunities, access to lending, and the ability to service that lending.’’
Interest rates
The question for anyone fixing a mortgage this year is whether interest rates will go up.
Mitchell believes the softening of LVR (loan to value ratio) lending rules this month present ‘‘the real prospect of record low interest rates – possibly well below 4 per cent in some cases’’.
And that finds some agreement from BNZ economist Tony Alexander, who is expecting interest rates to remain low.
He said the downward pressure on interest rates was coming from slowing world growth, falling oil prices, weak wages growth, and a fresh decline in businesses planning to put their prices up.
For investors, this meant they would have to continue to seek out higher-paying investments than the bank.
Business
According to the last ANZ Business Outlook, expectations about inflation have declined and there has been a sharp fall in businesses planning to increase prices over the next 12 months.
This year businesses will also face rising labour costs. The minimum wage will rise from $16.50 an hour to $17.70 on April 1, then to $18.90 in April 2020 and $20 come April 2021.
Alexander says that’s good news for those on low incomes but many businesses will struggle because they won’t be able to offset the wages with higher prices.
‘‘If we have high unemployment in this country then this would be very problematic.
‘‘But the labour market is exceptionally tight and there are jobs aplenty.
‘‘For our standard of living to rise, we need to see a shuffling of the valuable labour resource from low profit areas to higher profit ones.
‘‘Higher wages, the price of labour, are the mechanism through which these growth boosting changes occur in a capitalistic economy.’’
Certainly the job markets is trucking along well at present, and online job adverts grew 9.7 per cent over the last year.
Consumer confidence studies also suggest Kiwis are feeling relatively good. A net 14 per cent expected conditions to improve over the coming year, the highest level since March.
Shares
Of course, all forecasts come with a caveat of unforeseen events, known as ‘‘black swans’’.
It could be a bumpy ride, Mark Lister, head of private wealth research at Craigs Investment Partners, says.
‘‘The global economy is slowing down, but the question is how much is it slowing down.
‘‘If you look at the sharemarket, the US is down but it’s basically fell 20 per cent from its highs and the New Zealand market was one of the few markets that went up in 2018. It’s much less volatile. No need to get too gloomy.’’