What if the Reserve Bank is wrong?
New Zealanders have embraced the Reserve Bank’s latest recessionary forecasts with great enthusiasm. Phew, everything is officially terrible. What a relief. After all the criticism it’s actually something of a surprise endorsement of the RBNZ’S credibility and reputation that the forecast recession has captured the public’s imagination, in a way numerous similar forecasts by other economists did not . . . I worry that central banks, including ours, are going to overdo it with the hikes and cause a financial crash or deeper recession than is necessary. I’ll concede that view is born of my experience of recession in the early 1990s and the cycle of rate hikes ahead of the GFC in 2008. But, regardless, I can take some heart that the forecasts will probably be wrong.
Liam Dann, Opinion, Tuesday
Last time we had a recession the G20 countries worked with the US to print a lot of money and China flooded the world with cheap goods. This time around it’s not going to happen. Inflation will be above 5 per cent for a long time.
– John P Judging by how the people in Christchurch, Wellington and Auckland have been out in force throwing money around in the past week since Orr lectured the public about pulling our heads in on spending, he will need to raise the interest rate even higher than what he foreshadows. The price to fix his past sins will be higher than he thinks.
– Luka D
We’re in a very uncertain environment, that’s for sure. A great article by Liam shows the difficulty of predicting exactly what will happen. That being said, it didn’t need to be like this had the RBNZ turned
off the money printing much sooner and the Government opened the borders much sooner. In the last few days a successful business like Rodney Wayne has closed salons and Madam Woo has gone into voluntary administration. These aren’t poorly performing businesses that were financially suspect. They’re very good businesses that have closed because of an engineered Labour crisis.
– Alan M In August, Adrian Orr told us the OCR would peak at 4.1 per cent. In November Orr told us the OCR would peak at 5.5 per cent. Three months and the RBNZ projection had jumped in percentage terms by a massive 34 per cent (1.4 per cent on the original
4.1 per cent). Join the dots, — yes they are wrong, and yes it will be much much worse than what Orr has told us, especially with the Government having pretty much said they will not be stopping spending and the usual election year bribes yet to come next year.
– Brad M If they can’t get it right as the article suggest why bother having this bunch of overpaid bureaucrats?
–Pimv
It will be worse than the RBNZ is forecasting. The residential construction sector is on the edge of a massive slump, and it is pivotal to the domestic economy. With the slump occurring in that sector there will be less spending in hospitality, domestic tourism etc — the multiplier effect.