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ASB chief economist This is the turning point for the economy · The SME Stream

• 0:00
  Speaker 1: ASB has unveiled its forecast for twenty twenty six, and
• 0:05
  Speaker 1: after a sluggish and for some people, very tough year,
• 0:08
  Speaker 1: the bank says the tide may finally be turning. It's
• 0:12
  Speaker 1: predicting a slow but clear economic recovery, with easing interest
• 0:16
  Speaker 1: rates and improving export conditions helping to lift the country's growth.
• 0:20
  Speaker 1: Asb's chief economist is Nick Toughly, and he joins me
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  Speaker 1: to unpack what this means and how likely it is
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  Speaker 1: to actually come to fruition. Good morning to you, Nick.
• 0:29
  Speaker 1: I am wondering whether this is a less bad year
• 0:34
  Speaker 1: or are we actually looking at a good year.
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  Speaker 2: I think next year it will be a reasonably good year.
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  Speaker 2: But let's face it, the last three years have been
• 0:43
  Speaker 2: pretty tough. The economy really hasn't gone anywhere over that period,
• 0:46
  Speaker 2: so people have felt a lot of pressure. But we
• 0:49
  Speaker 2: have started to see some areas of spending picking up,
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  Speaker 2: some merely signs of building picking up, and an export
• 0:55
  Speaker 2: sector that's actually done astonishingly well. When you think about
• 0:57
  Speaker 2: all the trials and tribulations, try not to use another
• 1:00
  Speaker 2: tea word that we saw so earlier on this year.
• 1:04
  Speaker 1: One of the terms that does get used a lot
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  Speaker 1: at times like this is green shoots, and I heard
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  Speaker 1: a quote from someone the other day that green shoots
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  Speaker 1: does not a salad make. So what are the risks
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  Speaker 1: that we don't end up with a better year ahead?
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  Speaker 2: The key things would be that, as you say, look,
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  Speaker 2: the signs that we've seen don't sort of really come through,
• 1:29
  Speaker 2: but look, we're pretty confident that this is the turning point.
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  Speaker 2: I think also what got to remember is is that
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  Speaker 2: the Reserve Bank's been cutting interest rates for over a year.
• 1:36
  Speaker 2: Fixed mortgage rates have been falling for over two years,
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  Speaker 2: and that does take a while to get a bit
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  Speaker 2: of traction with that, and it really looks like it
• 1:42
  Speaker 2: is starting to come through, and we know that there
• 1:44
  Speaker 2: is more to come. So we're probably a bit more
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  Speaker 2: than halfway through the journey of most New Zealanders rolling
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  Speaker 2: on to a pretty low fixed rate mortgage, which would
• 1:54
  Speaker 2: help their cash flows a lot. And in the export sector,
• 1:56
  Speaker 2: we know we've got really good dairy revenues that have
• 1:59
  Speaker 2: been coming through. Meat prices have been very good, ironically,
• 2:03
  Speaker 2: thanks to Americans absolute love or addiction to hamburgers, and
• 2:07
  Speaker 2: even areas like care we Fruit have had a cover
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  Speaker 2: of pretty good season. So there is a lot of
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  Speaker 2: cash that's now starting to work its way through, and
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  Speaker 2: it'll be a lot more visible next year.
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  Speaker 1: Is this just then about meat and dairy prices and
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  Speaker 1: maybe a bit of tourism thrown in, or is there
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  Speaker 1: going to be widespread as strength in the economy.
• 2:27
  Speaker 2: We think it will be a lot wider. So, look,
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  Speaker 2: we're in that period now where we're just starting to
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  Speaker 2: see households start to do things again as they spend more.
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  Speaker 2: That's going to flow through into the retail sector, flow
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  Speaker 2: through into areas like manufacturing, your logistics, your construction looks
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  Speaker 2: like it's now starting to pick up more so on
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  Speaker 2: the home building, and that will help to support the
• 2:46
  Speaker 2: manufacturing sector again, and that all those sort of other
• 2:48
  Speaker 2: support sectors as well. The challenge we probably do have
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  Speaker 2: is in that sort of government area where just because
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  Speaker 2: pass spending has been so strong and you've got at
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  Speaker 2: restraint there, that's one area where things are likely to
• 2:59
  Speaker 2: be a lot slower. But that sort of private sector
• 3:02
  Speaker 2: part of it, particularly households, that is starting to turn
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  Speaker 2: and we're not predicting like there's going to be like
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  Speaker 2: sprinklings of sort of gold for everybody coming through everywhere
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  Speaker 2: but it is going to be getting back to a
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  Speaker 2: pace of growth that's going to be pretty respectable next year.
• 3:17
  Speaker 1: What about unemployment that tends to lag right, We've still
• 3:21
  Speaker 1: seen it rising even though things are supposedly getting better.
• 3:24
  Speaker 1: So how long before that starts to come down.
• 3:27
  Speaker 2: Well, we think we're pretty much at the highs now,
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  Speaker 2: sort of around five point three percent, and next year
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  Speaker 2: we're expectable gradually go down and we think we'll head
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  Speaker 2: back towards four and a half percent over the next
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  Speaker 2: couple of years or so. So jobs look like they're
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  Speaker 2: starting to turn the corner. You're seeing a lot more
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  Speaker 2: job ads going out. The sort of month to month
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  Speaker 2: job figures have stabilized for a number of months. So
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  Speaker 2: in the early stages we think of the employment recovery
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  Speaker 2: also starting to come through, But it is a bit
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  Speaker 2: of a sequencing thing. Lot. The more we go out
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  Speaker 2: and we spend, that flows through the businesses they get
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  Speaker 2: that confidence to again. That's where we see that coming through.
• 4:02
  Speaker 2: So the next leg of things, it's household spending a
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  Speaker 2: bit more, businesses knowing that they can invest in employ
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  Speaker 2: a bit more, and then that recovery will really take
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  Speaker 2: route and we'll get like a pretty good salad at
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  Speaker 2: some point next year.
• 4:15
  Speaker 1: You're taking that analogy and running with it. Just briefly.
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  Speaker 1: What about inflation. It's sitting at three percent, which is
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  Speaker 1: obviously at the top of the Reserve banks target band.
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  Speaker 1: Do we need to be worried about that?
• 4:27
  Speaker 2: I don't think so. So it'll ease down just a
• 4:29
  Speaker 2: little bit of the next figures that we get, which
• 4:31
  Speaker 2: will be during our sort of Christmas break in January.
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  Speaker 2: Then after that we'll see it fall sort of fairly
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  Speaker 2: quickly back to near two percent now by the middle
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  Speaker 2: of the year and sort of very close to two
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  Speaker 2: by the end of next year. So the sort of
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  Speaker 2: more domestic related inflation pressures look they are pretty mild.
• 4:46
  Speaker 2: That's reflecting the fact that the economy has been sort
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  Speaker 2: of flat for three years, and that's going to help
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  Speaker 2: keep inflation down. And it's things like some of the
• 4:53
  Speaker 2: sort of sharp lifts and export prices which won't get
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  Speaker 2: sustained that have been impacting, say they sort of meat
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  Speaker 2: and dairy prices at the cash registers. Some other price
• 5:02
  Speaker 2: increases that have been a bit more temporary will be
• 5:05
  Speaker 2: abating next year, so it will be much easier on
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  Speaker 2: the cost of living front than what it has felt
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  Speaker 2: this year, although obviously it's always a mixed bag. It
• 5:13
  Speaker 2: can feel inflation feel high for some people, low for others,
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  Speaker 2: like it's been a great time to get a good
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  Speaker 2: deal on appliances in electronics, which is why I've seen
• 5:23
  Speaker 2: an absolute spind up on those for example.
• 5:27
  Speaker 1: There will be people very very pleased to hear that,
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  Speaker 1: Thank you, Nick. Nick Tuughly asb's chief economists, joining us
• 5:33
  Speaker 1: this morning along with his two Teddy