NZ 'as prepared as it can be' for recession - economist

December 2, 2022

New Zealand is as prepared as it can be for a recession, according to economist Shamubeel Eaqub.

It comes after Finance Minister Grant Robertson said yesterday a recession is likely in the coming months. Reserve Bank Governor Adrian Orr has also said a recession is likely.

Robertson said "the sobering reality is global growth is slowing and New Zealand will not escape its impact, with forecasts of a shallow recession next year".

Speaking to Breakfast this morning, Eaqub said Kiwis can't "paper over" the fact that the predicted financial situation is going to be scary, but he doesn't think it's all doom and gloom.

Empty wallet.

"We're going into this downturn with the strongest labour market we've ever had, we've got more New Zealanders in work than we've ever had before," he said.

"We've got record labour shortages, so I don't think we're going to see the same scale of job loses as we have seen before and yes next year true, for mortgage holders life is going to be really tough but for other people we should start to see the relief easing inflation, of food and fuel coming through."

He said there's also "increased complexity" all over the world, which makes it hard to predict what could happen.

"I think we need to take a lot of humility in the way that we discuss these issues because we've been wrong for decades, you look at the forecasts of economists after the GFC, inflation's going to be a problem or interest rates are going to go up, economists have been wrong for 10 years."

New Zealand's official cash rate was lifted to 4.25% by the Reserve Bank last week, which generally affects what people do with their money.

The new OCR is an increase of 75 basis points from the previous rate of 3.5%.

It's the ninth consecutive time the Reserve Bank opted for a rates rise, and seventh increase in 2022 alone - February, April, May, July, August and October saw similar action.

In turn, ANZ, the country's biggest bank, and Westac have hiked mortgage rates again.

But Eaqub says he thinks the Reserve Bank has "gone too far".

"Interest rates have gone up so far that the pain for next year is going to be devastating at a time when the global economy is already slowing.

"Central banks around the world are in fact slowing down the pace of increases and our central bank has gone the other way, I think it is a mistake.

"We are going to hurt the economy more than is required."

He said he can see where the Reserve Bank is coming from, but he's also very concerned it's going too far, creating unnecessary pain in the coming months.


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