Latest / Best of Business / Sharon Zollner: ANZ chief economist on the bank predicting interest rates will drop further than expected

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Sharon Zollner: ANZ chief economist on the bank predicting interest rates will drop further than expected · Best of Business

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  Speaker 1: You're listening to a podcast from news Talks'd be follow
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  Speaker 2: Now am Z reckons that we're headed for lower interest
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  Speaker 2: rates than we possibly previously thought. They reckon the official
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  Speaker 2: cash rate will bottom out at two point five percent.
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  Speaker 2: That's down from the three percent low they'd previously expected.
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  Speaker 2: And just for context, it's currently setting at three and
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  Speaker 2: a half percent now. Sharon Zolner is A and z's
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  Speaker 2: chief economists and with us Now.
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  Speaker 3: Hey, Sharon, good evening.
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  Speaker 2: Why are you changing your forecast? Is this because of
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  Speaker 2: Trump's tariffs or is it because of our own sluggish
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  Speaker 2: recovery or is it a bit.
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  Speaker 3: Of both, a bit of both. Yeah, So the economy
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  Speaker 3: is recovering, and what's encouraging is that it's really broad based.
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  Speaker 3: And indeed, you know, why wouldn't it recover because we're
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  Speaker 3: coming out of a recession that was deliberately caused by
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  Speaker 3: higher interest rates, and rates have come down a long way.
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  Speaker 3: So that's the good news. But you know, just a
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  Speaker 3: few data points lately have been a bit on the
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  Speaker 3: soft side. The housing market's going now, we're fast, The
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  Speaker 3: services index was pretty low. The quarterly survey of business
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  Speaker 3: opinion suggests there's some downside risks to the near to
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  Speaker 3: GDP and that sort of thing, and then you've got
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  Speaker 3: the headwinds from offshore. Now, it's too soon to make
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  Speaker 3: any concrete judgments on what might happen to our commodity
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  Speaker 3: prices or anything like that, but it does seem pretty
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  Speaker 3: likely that some pretty full on uncertainty is going to
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  Speaker 3: persist for quite a long time, and that in itself
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  Speaker 3: is actually quite a headwind for the likes of investment
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  Speaker 3: and employment if firms just hit pause. So we think
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  Speaker 3: there was a bank or just needs to give the
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  Speaker 3: economy a bit more of a push in the back
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  Speaker 3: to make sure it keeps moving forward.
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  Speaker 2: So what's going on with our recovery? Why is it
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  Speaker 2: so sluggish?
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  Speaker 3: Well, I think we fell into a pretty deep hole.
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  Speaker 3: Maybe we broken ankle. You know the new GDP dat
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  Speaker 3: it Well, it's not that new anymore, but the revisions
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  Speaker 3: to the GDP certainly show that it was pretty rough.
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  Speaker 3: Economy found more than one percent in each of the
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  Speaker 3: second and third quarters last year. So I think, you know,
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  Speaker 3: you do get some damage done from that sort of thing.
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  Speaker 3: So it just I think it just takes a while
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  Speaker 3: for firms to believe really that things are to get
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  Speaker 3: better in that it is worth taking a bit of
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  Speaker 3: a punt on that new employee or that new machine
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  Speaker 3: or whatever it might be. And consumers, yeah, the cost
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  Speaker 3: of living crisis is still real for many. Inflation has
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  Speaker 3: come down a long way, but prices heaven't. So I
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  Speaker 3: think maybe to some extent, consumers are waiting for prices
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  Speaker 3: to fall back to where they should be, but actually
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  Speaker 3: lower inflation just means price is still going up, just
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  Speaker 3: not as quickly. So I think that perception will persist,
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  Speaker 3: perhaps even longer than the fact in terms of everything
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  Speaker 3: being unaffordable.
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  Speaker 2: Sharon, tell me what's your gut feel on the impact
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  Speaker 2: of Trump's tariffs on the global economy. Are we talking
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  Speaker 2: about freak out nineteen thirties depression stuff or are we
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  Speaker 2: talking about who everything just slows down and we go
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  Speaker 2: backwards a little bit.
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  Speaker 3: Well, I'm sure we could find any lots of people
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  Speaker 3: bunding at different points on that spectrum. Obviously the nineteen
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  Speaker 3: thirties is the extreme, but we have seen a lot
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  Speaker 3: of volatility in markets. But what's actually really caused a
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  Speaker 3: bit of a freak out was the unusual behavior of
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  Speaker 3: the US bond market. So typically when equities crash, people
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  Speaker 3: are compensated for the bond part of their portfolio. That
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  Speaker 3: wasn't the case, only for a couple of days, but
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  Speaker 3: that was just a little straw in the wind that
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  Speaker 3: has made to people jittery. So it's going to take
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  Speaker 3: quite a lot for everyone to just accept again that
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  Speaker 3: the US.
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  Speaker 2: Is a SACI so are you saying kind of are
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  Speaker 2: you saying what we should expect is we have a
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  Speaker 2: bit of a slow down, but there is the chance
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  Speaker 2: that there is the outside chance that we do head
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  Speaker 2: into like worst case scenario nineteen thirties depression stuff again.
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  Speaker 3: No, no, no, you're putting words in my mouth. I'm
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  Speaker 3: saying there is a chance that the markets are jitary
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  Speaker 3: and so I think that is constraining policy options at
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  Speaker 3: the moment. I think some lessons have been learned in
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  Speaker 3: the last week or two about you know, move fast
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  Speaker 3: and break things can have quite serious consequences. So I
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  Speaker 3: think they will tread more cautiously. But you'd be a
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  Speaker 3: brave person to be definitive about what an earth will
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  Speaker 3: happen next. But you know, for in New Zealand's case,
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  Speaker 3: the dairy prices went up overnight, so it's really not
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  Speaker 3: obvious that that New Zealand is going to take a
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  Speaker 3: clobbering from this at all, but that uncertainty thing that
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  Speaker 3: looks unavoidable.
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  Speaker 2: Yeah, Hey, Sharon, as always, thank you so much, Really
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  Speaker 2: appreciate your expertise at Sharon Zolna, a and z's chief economist.
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