September 21, 2025 • 40 mins
The economy had a worse than expected drop in the June quarter, shrinking 0.9%.
Finance Minister Nicola Willis has blamed it on global turmoil, but the Reserve Bank of New Zealand says there's a need to provide more stimulus to the economy by cutting the OCR.
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Episode Transcript
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks,
i'd be.
Speaker 2 (00:28):
Welcome back. Well, welcome into the Weekend Collective if you
have just joined us. I'm Tim Beverage and we're inviting
your calls and participation on eighty text nine two nine
two for this hour, it's welcome to Smart Money. And look,
you'd probably have to not be digesting the news at
all to be to not be aware that there were
(00:48):
some figures out that showed that we had a worse
than expect to drop in the dune quarter of our
where our GDP was shrinking, our economy shrink zero point
nine percent. Finance Minister Nichola Willis has blamed it on
global turmoil. You hear the you hear the descriptions of
in the world sneezes. Sorry, when the world sneezes, we
(01:10):
catch a cold. But what the Reserve Bank of New
Zealand says there's a need to provide more stimulus to
the economy by cutting the ocr Will it mean more
rate cuts this year? Will there be gently as it goes?
Ben Z reckons that will see a twenty five percent
basis a twenty five basis point cut next month sorry,
and Westpac and Rabobank have both increase their forecast to
(01:32):
fifty basis points since the GDP announcement, But is a
lower OCR rate Is that the key to getting the
economy back on track? What will let us know what
you reckon? I know one hundred eighty ten eighty or
text nine two nine two today to discuss that. We
are joined by Harbor Asset Management's head of Multi Asset
and Global Investments, Hamish Pepper youd A Hamish, Hey, Tim,
(01:57):
how are you? I'm good? I love your job description.
It sounds so flash.
Speaker 3 (02:02):
That's a pretty We don't have business cards anymore, you
throw them out all. I just like the word barbecues
and things.
Speaker 2 (02:08):
It's a head of multi asset and global investments. I
want to replace investments with domination. Just to make you
sound a lot more doctor evil or something. Hey, hey,
can you now I did promise people yesterday and when
we're looking forward to today is for a bit of
an explanation around some fairly boffinish sort of stuff. Sometimes people,
(02:30):
here are the economies contracted? This it was protected predicted.
Speaker 4 (02:33):
To be that.
Speaker 2 (02:34):
Can you for us dummies put it? Describe where we're
at in terms of what the GDP figures mean. Yeah,
paint a picture for us. I don't mean economics for dummies.
I shouldn't put it that way, but you know, yeah,
I think.
Speaker 3 (02:50):
The first thing to point out is, you know, we,
you know, probably have been a boffin at times and
not being particularly thoughtful of you know, some of the
words that I use in the acronyms and things like that.
Speaker 4 (03:04):
So I'm I'm not guilt free here term at all.
Speaker 3 (03:07):
But I think one of the first things to note
is that, you know, our economy is pretty big. You know,
something in the region of four hundred billion New Zealand
dollars we generate as an economy each year, and what
we become obsessed about is just the degree to which
that huge number is growing or in this case contracting,
(03:27):
And it's almost always by a relatively small amount on
a quarterly basis at least, but it does matter because
in this case, or the Q two numbers you mentioned,
it's another step backwards from a point of weakness, and
so I think where it begins to matter is when
(03:47):
you've had a succession of either very small amount of
growth very small amount of growth on a quarterly basis,
or indeed you've had some some negative prints or contraction
in the amount of output that we're producing as an economy.
Speaker 4 (04:01):
Overall.
Speaker 3 (04:02):
What that does is it tends to then create spare
capacity in the economy. And so the most obvious place
to look for that is the labor market. And I
think we'd all be aware of it, if not feeling it.
The economy's lost about fifty thousand jobs. The latest figures
show from the ID from the peak, we've got an
unemployment rate that's pushing up towards that sort of five
(04:24):
to five and a half percent now. And you know
that's where there's sort of rubber hits the road here.
So we go from you know, this kind of very
sort of Yeah, it is a bit of a boffin topic.
It's a bit you know, for the enthusiasts when we
talk about you know, GDB quarterly, but it really hits
home when we talk about things like unemployment and job losses.
Speaker 2 (04:44):
Yeah, I mean, I don't think of it. I don't
mean it as a boffinish topic. I just think in
terms of sometimes trying to put it in context so
we understand how we're all feeling about the economy. Sometimes,
you know, somebody says, did you know it contract a
b zero point nine percent? What was the production zero
point three percent?
Speaker 4 (04:57):
Was it? Yes, that's right. So it was a big
surprise to you.
Speaker 3 (05:01):
Know what the consensus the economists that forecasts, if you
take the average of what they were expecting, that was
the minus point three and you've got something that was
three times as large negative.
Speaker 4 (05:14):
So it was.
Speaker 3 (05:16):
Something for the market, financial markets to definitely pay attention to.
And of course you mentioned some of the forecasts that
we saw changed. Westpac probably got the most attention, moving
to a call for a fifty basis point rate cut
next month. So it was something that mattered and is
being reflected in markets, and we think will be reflected
(05:38):
in the RB and z's thinking when they meet.
Speaker 2 (05:41):
I've heard a couple of economists, so I recently heard
Tony Alexander at a conference I was out. I've mentioned
this before and his I don't want to paraphrase him
out of context, really, but I got the vibe that
I got the feeling that he feels that the reserve
banks approach will be more cautious than some of the
media commentators might be calling for because of a cut
(06:03):
in the ACER can be inflationary as well, can't it.
Speaker 3 (06:08):
Yeah, I'd have to say I really don't agree with
that view. I think the armen Z have increasingly been
willing to act and recognize the urgency for them to
lower rates and perhaps lower rates more quickly. In the
latest meeting, we had two of the Monetary Policy Committee
members wanting to cut by fifty basis points, but they
(06:31):
will voted.
Speaker 4 (06:32):
By four others.
Speaker 3 (06:34):
But yeah, I think this is a central bank we
have which is increasingly aware of their role in this recovery.
But the way that they would think about it is
they really don't want to miss their inflation target, which
is two percent on the downside next year, because that's
you know, if we think about is what are we
trying to do here? What are they thinking about? They're
(06:56):
thinking about an economy that's weak now it's surprisingly weak.
That's telling them there's more spare capacity. So the chance
of a higher unemployment rate, war job loss, all of
that sucks inflation pressure out of the economy.
Speaker 4 (07:10):
So I I just don't really agree with you.
Speaker 2 (07:12):
Oh yeah, actually I should be cautious. Maybe I misunderstood
what of saying I think he was talking about a
long term cuts and things where it's going to end up.
Speaker 3 (07:19):
Yeah, I mean I think there is that, and I
think that's where you know, I would say, we're the
market is right now. For example, they have a low
in the official cash rate, so we're at three at
the moment. The low that they have is around two
point three percent, So just call in another three twenty
five basis point rate cuts as priced.
Speaker 2 (07:41):
Is that you're making a prediction.
Speaker 3 (07:43):
No, that is what financial markets are telling us right now.
That's yeah, that's their prediction in the pricing of short
term interest rates. And I would say, even then, that's
not a particularly low cash rate. Let's call it two
point two five percent. I mean, we have seen something
that's two hundred basis points lower than that.
Speaker 2 (08:04):
What was our cash remind us what was it after caver?
Was it point five percent or something.
Speaker 4 (08:09):
Quarter of a percent? I think, god blimey, it was.
Speaker 2 (08:13):
I forgot that because that I've confused the borrowing rates
with the cash rates sometimes, because I think that there
were interest rates. Were you get a five year mortgage
at two point nine nine percent or something, couldn't you?
Speaker 4 (08:25):
Yeah? Unbelievable.
Speaker 3 (08:27):
Yes, And of course On the other side though, for
the poor savers through that time, we saw a six
month term deposit rates four below one percent, so it
was tough tough for them.
Speaker 4 (08:36):
But yes, obviously borrowers, we're very happy.
Speaker 2 (08:39):
So actually, just a couple of things digging into that
discussion around the revelation that was a Q two figure. Right,
So Q two is literally the month four, five and
six correct or is it something correct April, May, June,
(09:00):
where in September.
Speaker 4 (09:02):
It takes a while?
Speaker 2 (09:03):
Now, yes, can you can you explain or put in
context for those who think in the age of instant
data and AI, why does it take so bloody long
to find out what happened you know, August three months ago?
Speaker 3 (09:19):
Yeah, So, I mean I think there's two parts to
the story. I think the quicker part of the story
is that perhaps we've got a statistics department that is
underfunded in terms of its ability to collect data. I mean,
we don't look good globally in terms of the frequency
(09:40):
with which we are reporting economic data. So for example,
you know, most countries have monthly CPI, they would have monthly.
Speaker 4 (09:53):
Retail sales data. We don't have that.
Speaker 3 (09:57):
We've got quarterly CPI and The only thing we get
monthly that relates to retail sales is car transactions, which
are helpful, but just two examples of where you know,
we are perhaps lagging I think in that respect. And
and it probably goes through to this idea of could
we get GDP quicker?
Speaker 4 (10:17):
Well, yes we could if we had more people.
Speaker 2 (10:19):
More people, okay, okay, that's well, that's interesting. So what
are they okay if that's if that is not such
a great look for us, because other countries have monthly
updates and what is a comparison, what is it? Do
we know how quickly Australia gets its information and how
frequently on GDP?
Speaker 3 (10:37):
Yeah, I can quickly look it up for you. But
this while I'm doing that, we'll do that.
Speaker 2 (10:42):
We'll do that.
Speaker 4 (10:42):
Yeah. Yeah.
Speaker 3 (10:43):
The other the other dynamic though, is that you know,
GDP is a complicated data set to bring together, right
because you are literally trying to capture all of those
sources of output of activity in the economy. So an
example is, you know, I think many people listening would
(11:04):
have gone through something like this. If you've done a renovation,
for example, you may well have then received a letter
an email from Statistics in New Zealand asking you for
the value of that renovation. How much value have you
added through the course of that. They use those numbers
to then calculate the amount of residential investment that is
(11:28):
happening in the economy. And so that's just a good
example of why things just take time, right because you're
you're going out there, you're surveying, you're asking people, you're
waiting for those responses, you're collating them, you're cleaning the data,
you know, and that's just one small example, one small
part of our overall economic output. So GDP does take
a long time, and so it's not a quick piece
(11:52):
of data to come out anywhere. And indeed, in the
in the big developed economy is what tends to happen
is they'll they'll get a first release out, but they'll
know that because they've sort of rushed to get that out,
that they will be revisions. So there will be then
a second and a third and then a final read. Well,
we don't do that, We just wait for the final one.
But yeah, it's a complicated piece of data to put together.
Speaker 2 (12:15):
Actually, just on that again, as I sometimes say, I'm
never afraid of asking a dumb question does the infrequency
of well it's frequent, does the I don't know what,
you know, it's not as quickly the delay and it's
quarterly reporting. Does the fact that we don't have maybe
the reporting that other countries have. Is that any does
(12:36):
that have a negative side effect in terms of just
attitudes overseas towards investing in New Zealand and feeling confident
with where we're at and all that sort of stuff.
Is there any flow on effect that would be that
would justify lux and saying, you know what, I'm going
to give some more money to stats so we can
get better figures quickly, more quickly.
Speaker 4 (12:55):
Yeah, look, I mean I think I think there is
a case there.
Speaker 3 (12:59):
I'm going to make that point as an economist, you
know that I would love to have more data as
an higher frequency of the big things that we care about,
you know, GDP, inflation, the labor market. But it's not
to say that we aren't getting some of that. You know,
for example, the new data that we've been getting for
a while now from the i D which is the
(13:20):
field jobs data that are starting to be talked about.
I mean that's a real source of truth. You know,
when that gets reported monthly. Because it's coming from the ID,
we know exactly how many jobs have been added or lost,
as the more recent case has been in the economy.
And so that's that's been brilliant to have. And you know,
we've got other sort of innovation happening. The RB and
(13:42):
Z to have launched their what they call a GDP
now measure, So exactly this point, you know, you're making
tim that you have to wait so long to get
the GDP data. Can't we do something to kind of
give us an approximation of what it might turn out
to be given you know, the little pieces of data
we're getting along the way.
Speaker 4 (14:00):
And so them started publishing that.
Speaker 3 (14:02):
And you know it's who publishes that perfect the RB
zid themselves on their website.
Speaker 4 (14:08):
So it's great and just what I've got it in
front of me.
Speaker 3 (14:10):
So Australia released their Q two GDP on the third
of September, and so what will we be Okay, the
calendar maybe we weren't even two weeks A.
Speaker 2 (14:19):
Couple of weeks after not much Yeah, okay, so Australia
is not rocking and rolling either, and there is quarterly two.
I did a quick google on that whereas the UK
is monthly updates.
Speaker 3 (14:27):
I think, yeah, I think, I think when it comes
to GDP, quarterly is very very common. It's more in
those other metrics like inflation in the labor market, retail
sales that were a bit unusual, Yeah, being quarterly when
when most other countries are month.
Speaker 2 (14:42):
Okay, well look, we got to take a quick moment now,
but we'd love your your participation as well on eight
hundred and eighty ten eighty if you've got any questions
for Hamish Pepper, he's head of multi asset and Global
Investments at Harbor Asset Management. Than we'd love to hear
from here.
Speaker 4 (14:55):
But also.
Speaker 2 (14:57):
Just a rule of thumb is not many. I mean,
most people I've spoken to weren't actually particularly surprised by
the fact that our figures went that great, because I mean,
what are you what do you rely on when it
comes to assessing the well being of the economy. Do
you just look at I mean the cliche is how
much is a pound of butter cost these days? Or
do you aware of the fact that you speak to
(15:19):
your friends, you know, in the hospitality and the construction business,
and they say things are going pretty tough and you think, well,
the economy is probably not rocking and rolling. The figures
come out and you go, I'm not surprised, but what
do you do? What do you use to judge the
well being of the economy with? But you've got any
questions for Hamish as well as well, we'd love to
hear from you. O eighte hundred and eighty ten eighty
text nine nine two twenty two past five. News Talk said,
(15:41):
B Yes, we want your call on a couple of questions.
And I'm going to dig into this a bit more
with Hamish Pepper, who's my guest. He's a head of
multi asset and Global Investments at Harbor Asset Management. I
just keep repeating his job title because it just sounds
so cool. But anyway, hey, but the question is, are
you hanging out for a lower ocr either at a
(16:03):
personal interest because you had a mortgage? Do you really
think it's going to help our economy? How much further
do you think it'll fall? But the other question, which
I'm also throwing to Hamish right now is how much
responsibility does any government in New Zealand bear for what's
going on with GDP Because the background to my comments
and question for you, Hamish is that I sometimes think
(16:26):
that it's a bit like the head of water care
keeps his job depending on how much rain there has
been into the hydro lakes. They get too low, that
person's gone. It rains, they keep their job. Maybe doesn't
have sometimes so much influence and maybe that's is that
the case with the economy is we've got such so
many so much global uncertainty, We've got these massive tariffs
(16:48):
that have been floating around from the Trump administration. How
much responsibility does Nikola Willis bear for the results and
therefore if things turn around? How much credit?
Speaker 4 (17:00):
I mean?
Speaker 2 (17:01):
I remember Bell English being complimented for his handling of
you know, the set of books once everything got a
bit tough. So yeah, because Roger Douglas of Roger Nomics
fame was on the radio on the news, I think
saying that she should be sacked because he and I'm
not sure if the country has an appetite for Roger
(17:21):
nomics again. And I'm not sure if an insult from
Roger Douglas is seen as a good or a bad thing.
Lots I've just said a lot. How much responsibility does
she bear?
Speaker 4 (17:32):
Yeah?
Speaker 3 (17:32):
I think I think there's a bigger fish to fry
for the government right now, and that is to get
the debt growth under control. As many people would know,
this government is still running deficits, which is where you're
spending more than you are bringing in via taxes largely,
(17:56):
and that's a dynamic which is going to take many.
Speaker 4 (17:59):
Years to resolve.
Speaker 3 (18:01):
There is obviously in the forecast a return to balance
and then a small surplus, but from where we're starting,
it's not a particularly strong position, and so this is
limiting the government's ability to do what it would normally
do to them, which is I think why you know,
perhaps people are looking for blame there, because in normal
(18:23):
tough times and recessionary times, your government steps in, it
cuts taxes, it spends a bit more, and it's part
of the cushioning mechanism to ensure that those downturns are
not as deep as they otherwise would have been if
you hadn't had the government being able to provide some stimulus.
So this time is very, very different because of that
(18:44):
debt situation, and what it's meant is that most of
the responsibility or the ability for there to be some
stimulus has fallen into the Central Bank. It's fallen into
the Reserve Bank of New Zealand. And look, they know
that that is the case. It's not as if they
are saying I don't believe they are saying they want
(19:06):
more help from government.
Speaker 4 (19:07):
I think they.
Speaker 3 (19:08):
Recognize what government is doing because it's important that that
growth and debt is moderated an event eventually stops. That's
a very important thing for us as as a country
that relies on the rest of the world for funding.
Speaker 4 (19:22):
But yeah, it's definitely unusual.
Speaker 3 (19:24):
It's an unusual setup to be only being able to
rely on the central Bank to provide that questioning because.
Speaker 2 (19:31):
And you touched on the whole thing about managing the
definit trying to get us out of deficit and the
debt situation, which if the government went hard by trying
to cut costs to avoid deficit, of course that's not
something that helps the economy either. It's so much there's
so much pushing pushing Paul, isn't there with us stuff
robbing Peter to pay Paul and vice versas sort of
(19:52):
thing equal and opposite reactions to whatever the government does.
Speaker 3 (19:57):
Yeah, I mean, look, I think what we are still
going through is the unwind from that COVID post COVID
stimulus period, where I think most people, even within government
would now look back with hindsight and say, perhaps the
stimulus was provided for too long through that period there.
Speaker 4 (20:17):
Was a definite need.
Speaker 3 (20:18):
Initially, of course, it was right, and the wage subsidies
scheme worked fantastically well in terms of keeping people attached
to the labor force so that when we reopened they
went back to work and the jobs that they had.
Speaker 4 (20:29):
You know, that was absolutely brilliant.
Speaker 3 (20:31):
What probably was less so was the continuation of that
program and the continuation of stimulus more generally when the
economy was clearly recovering. And so what we're doing now
is essentially paying the price for that. You know, they
were great times when the recovery took hold, you know.
Speaker 4 (20:51):
For many reasons.
Speaker 3 (20:53):
This is now the price of having such a sharp
recovery and a fast recovery, We've got to pay for it.
Speaker 2 (21:00):
It's difficult political question, too, wasn't it, because the politicians,
you know, the opposition right now, again this is all
Nikola Willis's fault. And the other analogy has been someone saying, well,
it's a bit like the Arsonist criticizing the fire brigade
once they've set far out of the house and going, oh, look,
you're struggling to put the fire out that I set.
I mean, it's I don't know how much you can
be drawn on those comments as well, because you know,
(21:22):
you imagine you like to try and be a little
bit circumspect on these things.
Speaker 3 (21:27):
Look, no, I think just objectively, you know, like I've
just said that if you were if you were to
do it all again, would there have been as much
stimulus provided by government in that post COVID period?
Speaker 2 (21:41):
I think objectively, no, How would you quantify that amount
of money in terms of how much extra we spent
that we maybe wouldn't at this time? Is it ten
thirty fifty billion, by.
Speaker 3 (21:53):
The way, that's what we're dealing with. Well, I mean,
I'm not sure about quantifying it, But I think what
people are more comfortable to think about is that that
process to come back to a balanced budget began too late.
(22:14):
You know that that wasn't probably given the emphasis that
it should have been at an early enough point. And
now it's yeah, it's just a longer, more drawn out
process we're having to go through.
Speaker 2 (22:25):
I guess with the Christmas period, When are we going
to actually get the next figures because everything sort of
starts to I don't know who goes on holiday. But
so we've got these figures a few days ago, So
let's say the middle of September, October, November, December. I
guess we should be getting an update again in December,
shouldn't we.
Speaker 4 (22:44):
Yeah.
Speaker 3 (22:45):
It's usually a really inconvenient last piece of data for
the year. Sometimes it basically comes often the week of Christmas,
and so you've got all these economists who are you
real keen on it, of course, trying to get their
head around it, but also know that either people have
(23:05):
already left for their holidays or they're thinking about their own.
So it's basically the last piece of data before Christmas,
is that GDP number.
Speaker 2 (23:14):
What chance is it that I think some of the
conversation I've heard with people wanting to defend the government
at the moment or stave off any accusations is that
we may actually be doing a lot better than these figures,
because the figures a Q two. Yeah, and so we
may actually be doing a lot better already, or somewhat
(23:35):
better or a tiny bit better.
Speaker 3 (23:38):
Yeah, I mean I think this is what ends to
happen when you've fallen by a larger amount than expected,
then you can come back off that bottom more quickly
than you had thought. But what we really should be
thinking about.
Speaker 4 (23:53):
Is more of it.
Speaker 3 (23:54):
In level terms, you know, the amount of output that's
getting produced in the economy. I'm not sure how much
it really changes that picture. I think the picture we're
still dealing with as an economy that's producing much less
than it's capable of producing. And that's the bit that's disinflationary.
(24:14):
That's the bit that's causing the job losses, that's the
bit that's causing unemployment to rise.
Speaker 4 (24:18):
And so it's really until we solve that.
Speaker 3 (24:21):
Which is going to be something probably not until the
end of next year at the very earliest.
Speaker 4 (24:27):
I would have thought that, yeah, that's when you can
get excited.
Speaker 3 (24:31):
But yeah, look, there will be probably a bounce back
in Q three, but we are already getting some numbers
that feed into the third quarter activity and they're not fantastic. So,
for example, our manufacturing sector has dropped back into contraction.
If you take the Business New Zealand Manufacturing pm I survey,
(24:54):
and we've got a services sector that remains in contraction
according to that survey. So yeah, it'll be better, but
it's I don't think it will be fantastic for a while.
Speaker 2 (25:05):
So let's look at that. The thing that the reserve
banks obviously in charge of is that OCR. How much
firstly the yes or no questions, will a lowier, lower
OCR really help our economy? And if so, how does
that actually work? How much can it make a difference
(25:26):
to New Zealand's economy in terms of is it because
it frees up more money for households who are resetting
their mortgages and they find they've got a bit more
money to spend, or and other? Is it all about
the borrowing borrowings cheaper, good, We've got more, I'm not
paying so much managing my debt.
Speaker 4 (25:43):
It's both.
Speaker 3 (25:44):
So you bang on on the borrowing and we're in
a fortunate position still where most of that borrowing is
it relatively short terms. People are still choosing to fix
around that kind of one year point, not not much
longer than that. So as the OCR falls and you
get mortgage rates declined, people will roll off those relatively
(26:04):
short dated fixed mortgages onto those lower rates. And as
you said, freeze up cash flow the ability for them
to spend and generate economic activity. But the other side is,
of course the savers who you know, as those interest
rates fall and we see that pass through, so the
OCR passes through and to term deposit rates. They then
(26:24):
have a reaction to that, and so it's less rewarding
for them to postpone consumption, you know, which is essentially
what saving is. They think differently about that choice, and
at the margin are likely to be more inclined to
spend than to save. So the two work together. But
(26:46):
your broad point is does twenty five basis points make
much of a difference?
Speaker 4 (26:52):
No? Is that really the answer? But but if what.
Speaker 2 (26:55):
We can that idea, it's going to go further than that.
Speaker 3 (26:58):
Yeah, yeah, I think that's if you think about the
way that the market has shifted. Just for example, so
the market took a while to really contemplate the idea
that the official cash rate would go below three percent. Yeah,
didn't really think it needed to. Probably the ZUM bank
in New Zealand was kind of on the same page.
And now we've shifted to because of this weakness and
(27:19):
activity we've been talking about. Now we've shifted to this
regime or this idea that actually maybe it could be
quite a bit lower, maybe something closer to two percent,
And that does change, that moves the needle, that that
kind of shift.
Speaker 2 (27:31):
What actually just reminds me of what is it now?
Is three point two five.
Speaker 4 (27:35):
Or three three? At the moment, that's three?
Speaker 2 (27:37):
Okay?
Speaker 4 (27:37):
Right?
Speaker 2 (27:39):
So okay, just a quick question. I don't want to
throw curve balls at you, but I was thinking, you know,
you're talking about savers versus borrowers. Do you have a
feel on how much of the economy is actually driven
by savers versus borrowers, Because intuitively, I would imagine that
(28:00):
it's driven more by borrowers because that's the stimulus that
we too. You give people more money in their pocket
because a larger part of the economy is as people
who've got money owing.
Speaker 3 (28:14):
What's interesting, So one statistic or rough rule of thumb
that comes to mind is if you take our economy
and think about those that own houses, those that own
them outright as an no mortgage, those that are mortgaged
in their home ownership, and those that don't own a
(28:36):
home at all and likely rent, it's about a third
or third or third, So a third of the country
is renting. Just roughly third of the country own their
own home and don't have a mortgage. Third of the
country your own home and have a mortgage. So yeah,
you've got quite a large transmission mechanism there coming from
(28:59):
those that are mortgaged. And so as interest ratesful, you know,
there's a freeing up cash flow and a response. But
that middle ground where you own your own home, that's
where the wealth effect is something that comes in. So
those lower interest rates, it's not so much about cash
flow to you, but if what they flow through to
is an appreciation, an increase in.
Speaker 4 (29:21):
Your house price value.
Speaker 3 (29:24):
You may not always, but on an aggregate it is.
It is something that we observe. You tend to be
more willing to spend when the value of.
Speaker 2 (29:33):
Your he and it's like a house. It's just like
my house is worth a cup and a mill. I
can imagine in twenty years timing on a downsize and
I'm going to spend about half of that once I've
sold yep, yep.
Speaker 3 (29:46):
And it's and it's something that is probably strong that
we we're one of the developed economies where that wealth
effect is stronger than in other places. Even In Australia,
I think what happens in Australia with the wealth effect
is it's more about the turnover in the housing market.
So as let's just play.
Speaker 4 (30:05):
The scenario scenario out.
Speaker 3 (30:07):
The official cash rate falls, mortgage rates decline. That provides
a bit of fuel to the housing market. As that
happens and prices rise, you also get turnover picking up
more sales. And it's when that happens people are doing
stuff like buying furniture, buying white ware, you know, fridges,
and washing machines, dryer and stuff like that. Yeah, exactly.
(30:31):
And it's that bit that you then see show up
in consumption, not so much that people are saying, like
you you know, you were outlaying there, Oh I hop
onto homestot co dot In z and a consumer house
prices up fifty grand, Okay, well I'm going to go
and spend some It's more the latter. In New Zealand, though,
I think what happens is we get both. We get
(30:51):
the turnover in the housing market, pick up, prices of
houses go up. People are doing all that stuff I
described like they are in a Aussie but then also
they are feeling more confident to spend and more willing
to spend because of the value of their property.
Speaker 2 (31:05):
That's fascinating. Of course we're not getting the wealth effect
right now because the housing market is fairly flat. I'll
tell you what. We'll come back and dig into the
housing market in just a moment and where that may
or may not be going given the given the new
news about GDP, potential changes in the ocr which make
borrowing cheaper, so maybe people have started thinking about buying ours.
Speaker 4 (31:28):
I don't know.
Speaker 2 (31:28):
First time buyers are certainly active. We're with Hamish Pepper,
he's head of multi asset and Global Investments at Harbor
Asset Management. We'll be back and just to take your
thoughts if you want. We've got lots of texts to
get into as well. I'll dig into with Hamish in
just a moment. Yes, welcome back to smart Money. Gosh,
time flies. It's actually quite fascinating this conversation. I hope
if you if you're listening, it gives you a more
(31:48):
confidence steering where you think things are going with the
cash rate, and perhaps you understand it a bit better.
But we have been talking a bit about doom and
bloom with the GDP, with Hamish Pepper from Harbor Asset Management.
But let's talk about a bright spot the external sector.
We've we've had some good you know, the farming. If
you're a farmer, you're well, I'm as expression rocking and rolling,
you're doing it all right.
Speaker 3 (32:10):
Yeah, Yeah, that's the real bright spot in the economy
for sure term. And it's not just dairy, right. I
think that kind of story has been well covered. Record
high Fonterra milk payout for the season just being and
we're on track for that to be the same again
in the season we've just started. And then all of
(32:30):
a sudden, Fonterra sell their consumer business and that's a
huge windfall for those dairy farmers who are part of
the cooperative. We estimate that the average shareholder is likely
to get something towards four hundred thousand dollars in the
hand six free yeah, as early as the first quarter
(32:53):
of next year.
Speaker 4 (32:53):
And so I think that income it's not all.
Speaker 3 (32:59):
It's a capital return and so they get the lot,
which is it's great because we had so if we
take one step back, I think one of the disappointments
from the first half of the year had been the
external sector not quite doing what it normally does, which
is to feed into the broader economy and help help
(33:20):
the recovery. And instead what we'd seen was a fair
bit of caution from farmers. This would include the Sheban
beef as well, who were experiencing good demand, good prices too,
but they were instead choosing to pay down debt. They
were accumulating cash balances in their accounts. But that's shifted
in the most recent data we get on those two things,
(33:42):
much more appetite to borrow now, much more appetite to
spend those accumulated cash balances. And then of course we
had the Fonterra news about the consumer business on top
of that. So I think there's a real hope that
now we might have the right set up where we
can get that more traditional external lead recovery. But it's
(34:02):
still going to take time, and there's a big hole,
you know, like we've talking about, but it's it's one
hundred percent helpful dynamic. Right.
Speaker 2 (34:08):
Let's take a call Jason.
Speaker 5 (34:09):
Hello, Yeah, hy here you go.
Speaker 2 (34:12):
Good.
Speaker 5 (34:14):
Yeah, I just have a question with with regards to
you know that the opposition are talking about capital gains
and in these sort of things and new taxes and
that it's labor in labor gain what how does it work?
I mean, does it does it work on your purchase
(34:34):
price or will it go on the retrospectively on your
purchase price, or will it go on the price that
the valuations are at the time of that they implement it.
Speaker 2 (34:45):
Oh, well, that's going to depend on the policy, I guess, Jason.
But how much in terms of tax changes. I guess
we can tie that into a conversation around is that
going to help the economy if we're going to start
taxing people little bit more?
Speaker 3 (34:57):
Yeah, I mean you can understand why this has perhaps
been considered. You know, we've talked about the largest deficits
and the growth in debt which is occurring, and a
way to help that dynamic improve would be an additional
tax and a capital gains taxes, something that's been talked
about for a long time, right, But I mean.
Speaker 2 (35:20):
The argument that the primary legal principle would be you
couldn't have a tax that was retrospective, I guess, which
was help answered Jason's question.
Speaker 4 (35:28):
Yeah, I think that's right.
Speaker 3 (35:30):
That would be my assumption that you know, anything that
to be announced would be would have a sort of
a line in the Sanders to win, it was to
apply from and then it would be the realized that yes,
it would have to be realized. Well, it didn't have
to be actually, but let's imagine it is. It's the
realized gains from that point onwards that you're then perhaps liable.
Speaker 4 (35:53):
For income tax or keptic gains tax to be paid.
Speaker 2 (35:55):
Good old adage, of course, you never tax your way
out of a recession. We could have thrown that out
as a talkback, Palk Actually, and I don't think you
do though, do you.
Speaker 4 (36:03):
Well, that's the thing.
Speaker 3 (36:04):
Yeah, it may well help on your deficit side, but
it's not going to be at all one way, because
if you hurt your economy, you're likely to then reduce
the tax revenue you're getting from other sources, you know,
become texts and GST for example.
Speaker 2 (36:21):
Yeah, and Jason, if you're still listening, that's probably a
conversation we'll explore as we get closer to election time,
depending on what policies are announced. Because I noticed that
there's some pole of New Zealanders suggests that most people
believe that in the next twenty or thirty years there
is going to be a capital gains tax or some
similar thing. But yeah, you'd have to ask a politician
(36:42):
that question. But yeah, the legal principle is you can't
be retrospective with your with your changes. Right. Just a
quick question before we head to the break. Can you
ask Camus why is it called negative growth and not
a decline? The language is just because we try and
be positive in a way. Haveing the word growth in
there somehow.
Speaker 4 (37:03):
Before it is a good point. It is a good point. Yeah,
probably not. We should just say declined, shouldn't we?
Speaker 2 (37:09):
That sounds so depressing though, because empire, you know, the
decline and the rise and decline or something of all
the Roman Empire. I don't know, it's a bit depressing anyway.
We'll be back in just to take those nine minutes
to sack News Talk z B where with Hamish papperhead
of multisset and Global Investments at Harbor Asset Management. I
did say we're going to get onto the property market,
but I've left lifted a bit late there, Hamish. But
(37:31):
with the OC anticipated cuts over the next two or
three rounds and the GDP figures being a bit slack,
what are you reckon about the housing market for a
quick take in a couple of minutes.
Speaker 3 (37:42):
I think the biggest thing we've learned in the housing
market term is interest rates are one thing. But if
you've got unemployment rising, you've got population growth falling because
migration into the country is dropping off, then it's still
going to be it's going to be a hard dynamic
to get much life out of out of housing. So
we need those other things to look a bit better
as well as those lower interest rates before things really
(38:05):
start to turn around.
Speaker 2 (38:07):
What do you think investors would need to see to
get back in the market, Because of course, if the
market's flat, that's not a bad time to buy, but
you want to know that it's not going to be
flatted too much longer.
Speaker 3 (38:17):
Yeah, I think that's the short answer here, is that
an expectation of capital gain from investors it's going to
need to be more than just what they're getting out
of their rental income because just insurance and rates are
so expensive, right, so much higher than they were five
years ago, that it's a higher hurdle now, I think
for the average property investor. So that capital game piece
(38:39):
is going to be important.
Speaker 2 (38:41):
So if you were just to have your reckons based
on what the other financial institutions are saying, we're reckoning,
and you've changed, You've informed me, so I've got a
clearer view of it. You reckon it's probably minimum point five,
but maybe point seventy five, and there are some calling
for one. So let's say probably ever, what next six
to nine months, we might see a points seventy five
(39:01):
cut took twenty five at a time. What do you reckon?
Speaker 4 (39:04):
Yeah, look, I.
Speaker 3 (39:04):
Think that's very reasonable, very reasonable to you know, and
I think what's happening is as sort of that expectation
is becoming embedded more broadly. That's part of what's driving people.
Speaker 4 (39:17):
You know.
Speaker 3 (39:17):
If you think about that mortgage piece, why are people
not reaching out to two and three year mortgages, It's
because they believe that we haven't yet bottomed when it
comes to the OCOA.
Speaker 2 (39:27):
Hey, hey Moos, great to chat to you, mate. I
really appreciate the time. Thanks so much, thanks for having
me and harbor Asset dot co, dot and z if
you want to go and check out the information they've
got at harbor Asset and we'll look forward to talking
with the folks from there again sometime soon.
Speaker 4 (39:42):
Right.
Speaker 2 (39:42):
Thanks to my producer tyre ward. If you've missed any
of the discussions this hour, in particular this hour on
the previous hours, go to news Talks to be dot
coded and zed. Look for the Weekend Collective and a
podcast to be up as running pretty much just before
I've finished speaking, So enjoy the rest of your weekend
and we'll catch again same time next weekend.
Speaker 1 (40:02):
For more from the Weekend Collective, listen live to news
to Org SeeDB weekends from three pm, or follow the
podcast on iHeartRadio.
You're listening to the Weekend Collective podcast from News Talks,
i'd be.
Speaker 2 (00:28):
Welcome back. Well, welcome into the Weekend Collective if you
have just joined us. I'm Tim Beverage and we're inviting
your calls and participation on eighty text nine two nine
two for this hour, it's welcome to Smart Money. And look,
you'd probably have to not be digesting the news at
all to be to not be aware that there were
(00:48):
some figures out that showed that we had a worse
than expect to drop in the dune quarter of our
where our GDP was shrinking, our economy shrink zero point
nine percent. Finance Minister Nichola Willis has blamed it on
global turmoil. You hear the you hear the descriptions of
in the world sneezes. Sorry, when the world sneezes, we
(01:10):
catch a cold. But what the Reserve Bank of New
Zealand says there's a need to provide more stimulus to
the economy by cutting the ocr Will it mean more
rate cuts this year? Will there be gently as it goes?
Ben Z reckons that will see a twenty five percent
basis a twenty five basis point cut next month sorry,
and Westpac and Rabobank have both increase their forecast to
(01:32):
fifty basis points since the GDP announcement, But is a
lower OCR rate Is that the key to getting the
economy back on track? What will let us know what
you reckon? I know one hundred eighty ten eighty or
text nine two nine two today to discuss that. We
are joined by Harbor Asset Management's head of Multi Asset
and Global Investments, Hamish Pepper youd A Hamish, Hey, Tim,
(01:57):
how are you? I'm good? I love your job description.
It sounds so flash.
Speaker 3 (02:02):
That's a pretty We don't have business cards anymore, you
throw them out all. I just like the word barbecues
and things.
Speaker 2 (02:08):
It's a head of multi asset and global investments. I
want to replace investments with domination. Just to make you
sound a lot more doctor evil or something. Hey, hey,
can you now I did promise people yesterday and when
we're looking forward to today is for a bit of
an explanation around some fairly boffinish sort of stuff. Sometimes people,
(02:30):
here are the economies contracted? This it was protected predicted.
Speaker 4 (02:33):
To be that.
Speaker 2 (02:34):
Can you for us dummies put it? Describe where we're
at in terms of what the GDP figures mean. Yeah,
paint a picture for us. I don't mean economics for dummies.
I shouldn't put it that way, but you know, yeah,
I think.
Speaker 3 (02:50):
The first thing to point out is, you know, we,
you know, probably have been a boffin at times and
not being particularly thoughtful of you know, some of the
words that I use in the acronyms and things like that.
Speaker 4 (03:04):
So I'm I'm not guilt free here term at all.
Speaker 3 (03:07):
But I think one of the first things to note
is that, you know, our economy is pretty big. You know,
something in the region of four hundred billion New Zealand
dollars we generate as an economy each year, and what
we become obsessed about is just the degree to which
that huge number is growing or in this case contracting,
(03:27):
And it's almost always by a relatively small amount on
a quarterly basis at least, but it does matter because
in this case, or the Q two numbers you mentioned,
it's another step backwards from a point of weakness, and
so I think where it begins to matter is when
(03:47):
you've had a succession of either very small amount of
growth very small amount of growth on a quarterly basis,
or indeed you've had some some negative prints or contraction
in the amount of output that we're producing as an economy.
Speaker 4 (04:01):
Overall.
Speaker 3 (04:02):
What that does is it tends to then create spare
capacity in the economy. And so the most obvious place
to look for that is the labor market. And I
think we'd all be aware of it, if not feeling it.
The economy's lost about fifty thousand jobs. The latest figures
show from the ID from the peak, we've got an
unemployment rate that's pushing up towards that sort of five
(04:24):
to five and a half percent now. And you know
that's where there's sort of rubber hits the road here.
So we go from you know, this kind of very
sort of Yeah, it is a bit of a boffin topic.
It's a bit you know, for the enthusiasts when we
talk about you know, GDB quarterly, but it really hits
home when we talk about things like unemployment and job losses.
Speaker 2 (04:44):
Yeah, I mean, I don't think of it. I don't
mean it as a boffinish topic. I just think in
terms of sometimes trying to put it in context so
we understand how we're all feeling about the economy. Sometimes,
you know, somebody says, did you know it contract a
b zero point nine percent? What was the production zero
point three percent?
Speaker 4 (04:57):
Was it? Yes, that's right. So it was a big
surprise to you.
Speaker 3 (05:01):
Know what the consensus the economists that forecasts, if you
take the average of what they were expecting, that was
the minus point three and you've got something that was
three times as large negative.
Speaker 4 (05:14):
So it was.
Speaker 3 (05:16):
Something for the market, financial markets to definitely pay attention to.
And of course you mentioned some of the forecasts that
we saw changed. Westpac probably got the most attention, moving
to a call for a fifty basis point rate cut
next month. So it was something that mattered and is
being reflected in markets, and we think will be reflected
(05:38):
in the RB and z's thinking when they meet.
Speaker 2 (05:41):
I've heard a couple of economists, so I recently heard
Tony Alexander at a conference I was out. I've mentioned
this before and his I don't want to paraphrase him
out of context, really, but I got the vibe that
I got the feeling that he feels that the reserve
banks approach will be more cautious than some of the
media commentators might be calling for because of a cut
(06:03):
in the ACER can be inflationary as well, can't it.
Speaker 3 (06:08):
Yeah, I'd have to say I really don't agree with
that view. I think the armen Z have increasingly been
willing to act and recognize the urgency for them to
lower rates and perhaps lower rates more quickly. In the
latest meeting, we had two of the Monetary Policy Committee
members wanting to cut by fifty basis points, but they
(06:31):
will voted.
Speaker 4 (06:32):
By four others.
Speaker 3 (06:34):
But yeah, I think this is a central bank we
have which is increasingly aware of their role in this recovery.
But the way that they would think about it is
they really don't want to miss their inflation target, which
is two percent on the downside next year, because that's
you know, if we think about is what are we
trying to do here? What are they thinking about? They're
(06:56):
thinking about an economy that's weak now it's surprisingly weak.
That's telling them there's more spare capacity. So the chance
of a higher unemployment rate, war job loss, all of
that sucks inflation pressure out of the economy.
Speaker 4 (07:10):
So I I just don't really agree with you.
Speaker 2 (07:12):
Oh yeah, actually I should be cautious. Maybe I misunderstood
what of saying I think he was talking about a
long term cuts and things where it's going to end up.
Speaker 3 (07:19):
Yeah, I mean I think there is that, and I
think that's where you know, I would say, we're the
market is right now. For example, they have a low
in the official cash rate, so we're at three at
the moment. The low that they have is around two
point three percent, So just call in another three twenty
five basis point rate cuts as priced.
Speaker 2 (07:41):
Is that you're making a prediction.
Speaker 3 (07:43):
No, that is what financial markets are telling us right now.
That's yeah, that's their prediction in the pricing of short
term interest rates. And I would say, even then, that's
not a particularly low cash rate. Let's call it two
point two five percent. I mean, we have seen something
that's two hundred basis points lower than that.
Speaker 2 (08:04):
What was our cash remind us what was it after caver?
Was it point five percent or something.
Speaker 4 (08:09):
Quarter of a percent? I think, god blimey, it was.
Speaker 2 (08:13):
I forgot that because that I've confused the borrowing rates
with the cash rates sometimes, because I think that there
were interest rates. Were you get a five year mortgage
at two point nine nine percent or something, couldn't you?
Speaker 4 (08:25):
Yeah? Unbelievable.
Speaker 3 (08:27):
Yes, And of course On the other side though, for
the poor savers through that time, we saw a six
month term deposit rates four below one percent, so it
was tough tough for them.
Speaker 4 (08:36):
But yes, obviously borrowers, we're very happy.
Speaker 2 (08:39):
So actually, just a couple of things digging into that
discussion around the revelation that was a Q two figure. Right,
So Q two is literally the month four, five and
six correct or is it something correct April, May, June,
(09:00):
where in September.
Speaker 4 (09:02):
It takes a while?
Speaker 2 (09:03):
Now, yes, can you can you explain or put in
context for those who think in the age of instant
data and AI, why does it take so bloody long
to find out what happened you know, August three months ago?
Speaker 3 (09:19):
Yeah, So, I mean I think there's two parts to
the story. I think the quicker part of the story
is that perhaps we've got a statistics department that is
underfunded in terms of its ability to collect data. I mean,
we don't look good globally in terms of the frequency
(09:40):
with which we are reporting economic data. So for example,
you know, most countries have monthly CPI, they would have monthly.
Speaker 4 (09:53):
Retail sales data. We don't have that.
Speaker 3 (09:57):
We've got quarterly CPI and The only thing we get
monthly that relates to retail sales is car transactions, which
are helpful, but just two examples of where you know,
we are perhaps lagging I think in that respect. And
and it probably goes through to this idea of could
we get GDP quicker?
Speaker 4 (10:17):
Well, yes we could if we had more people.
Speaker 2 (10:19):
More people, okay, okay, that's well, that's interesting. So what
are they okay if that's if that is not such
a great look for us, because other countries have monthly
updates and what is a comparison, what is it? Do
we know how quickly Australia gets its information and how
frequently on GDP?
Speaker 3 (10:37):
Yeah, I can quickly look it up for you. But
this while I'm doing that, we'll do that.
Speaker 2 (10:42):
We'll do that.
Speaker 4 (10:42):
Yeah. Yeah.
Speaker 3 (10:43):
The other the other dynamic though, is that you know,
GDP is a complicated data set to bring together, right
because you are literally trying to capture all of those
sources of output of activity in the economy. So an
example is, you know, I think many people listening would
(11:04):
have gone through something like this. If you've done a renovation,
for example, you may well have then received a letter
an email from Statistics in New Zealand asking you for
the value of that renovation. How much value have you
added through the course of that. They use those numbers
to then calculate the amount of residential investment that is
(11:28):
happening in the economy. And so that's just a good
example of why things just take time, right because you're
you're going out there, you're surveying, you're asking people, you're
waiting for those responses, you're collating them, you're cleaning the data,
you know, and that's just one small example, one small
part of our overall economic output. So GDP does take
a long time, and so it's not a quick piece
(11:52):
of data to come out anywhere. And indeed, in the
in the big developed economy is what tends to happen
is they'll they'll get a first release out, but they'll
know that because they've sort of rushed to get that out,
that they will be revisions. So there will be then
a second and a third and then a final read. Well,
we don't do that, We just wait for the final one.
But yeah, it's a complicated piece of data to put together.
Speaker 2 (12:15):
Actually, just on that again, as I sometimes say, I'm
never afraid of asking a dumb question does the infrequency
of well it's frequent, does the I don't know what,
you know, it's not as quickly the delay and it's
quarterly reporting. Does the fact that we don't have maybe
the reporting that other countries have. Is that any does
(12:36):
that have a negative side effect in terms of just
attitudes overseas towards investing in New Zealand and feeling confident
with where we're at and all that sort of stuff.
Is there any flow on effect that would be that
would justify lux and saying, you know what, I'm going
to give some more money to stats so we can
get better figures quickly, more quickly.
Speaker 4 (12:55):
Yeah, look, I mean I think I think there is
a case there.
Speaker 3 (12:59):
I'm going to make that point as an economist, you
know that I would love to have more data as
an higher frequency of the big things that we care about,
you know, GDP, inflation, the labor market. But it's not
to say that we aren't getting some of that. You know,
for example, the new data that we've been getting for
a while now from the i D which is the
(13:20):
field jobs data that are starting to be talked about.
I mean that's a real source of truth. You know,
when that gets reported monthly. Because it's coming from the ID,
we know exactly how many jobs have been added or lost,
as the more recent case has been in the economy.
And so that's that's been brilliant to have. And you know,
we've got other sort of innovation happening. The RB and
(13:42):
Z to have launched their what they call a GDP
now measure, So exactly this point, you know, you're making
tim that you have to wait so long to get
the GDP data. Can't we do something to kind of
give us an approximation of what it might turn out
to be given you know, the little pieces of data
we're getting along the way.
Speaker 4 (14:00):
And so them started publishing that.
Speaker 3 (14:02):
And you know it's who publishes that perfect the RB
zid themselves on their website.
Speaker 4 (14:08):
So it's great and just what I've got it in
front of me.
Speaker 3 (14:10):
So Australia released their Q two GDP on the third
of September, and so what will we be Okay, the
calendar maybe we weren't even two weeks A.
Speaker 2 (14:19):
Couple of weeks after not much Yeah, okay, so Australia
is not rocking and rolling either, and there is quarterly two.
I did a quick google on that whereas the UK
is monthly updates.
Speaker 3 (14:27):
I think, yeah, I think, I think when it comes
to GDP, quarterly is very very common. It's more in
those other metrics like inflation in the labor market, retail
sales that were a bit unusual, Yeah, being quarterly when
when most other countries are month.
Speaker 2 (14:42):
Okay, well look, we got to take a quick moment now,
but we'd love your your participation as well on eight
hundred and eighty ten eighty if you've got any questions
for Hamish Pepper, he's head of multi asset and Global
Investments at Harbor Asset Management. Than we'd love to hear
from here.
Speaker 4 (14:55):
But also.
Speaker 2 (14:57):
Just a rule of thumb is not many. I mean,
most people I've spoken to weren't actually particularly surprised by
the fact that our figures went that great, because I mean,
what are you what do you rely on when it
comes to assessing the well being of the economy. Do
you just look at I mean the cliche is how
much is a pound of butter cost these days? Or
do you aware of the fact that you speak to
(15:19):
your friends, you know, in the hospitality and the construction business,
and they say things are going pretty tough and you think, well,
the economy is probably not rocking and rolling. The figures
come out and you go, I'm not surprised, but what
do you do? What do you use to judge the
well being of the economy with? But you've got any
questions for Hamish as well as well, we'd love to
hear from you. O eighte hundred and eighty ten eighty
text nine nine two twenty two past five. News Talk said,
(15:41):
B Yes, we want your call on a couple of questions.
And I'm going to dig into this a bit more
with Hamish Pepper, who's my guest. He's a head of
multi asset and Global Investments at Harbor Asset Management. I
just keep repeating his job title because it just sounds
so cool. But anyway, hey, but the question is, are
you hanging out for a lower ocr either at a
(16:03):
personal interest because you had a mortgage? Do you really
think it's going to help our economy? How much further
do you think it'll fall? But the other question, which
I'm also throwing to Hamish right now is how much
responsibility does any government in New Zealand bear for what's
going on with GDP Because the background to my comments
and question for you, Hamish is that I sometimes think
(16:26):
that it's a bit like the head of water care
keeps his job depending on how much rain there has
been into the hydro lakes. They get too low, that
person's gone. It rains, they keep their job. Maybe doesn't
have sometimes so much influence and maybe that's is that
the case with the economy is we've got such so
many so much global uncertainty, We've got these massive tariffs
(16:48):
that have been floating around from the Trump administration. How
much responsibility does Nikola Willis bear for the results and
therefore if things turn around? How much credit?
Speaker 4 (17:00):
I mean?
Speaker 2 (17:01):
I remember Bell English being complimented for his handling of
you know, the set of books once everything got a
bit tough. So yeah, because Roger Douglas of Roger Nomics
fame was on the radio on the news, I think
saying that she should be sacked because he and I'm
not sure if the country has an appetite for Roger
(17:21):
nomics again. And I'm not sure if an insult from
Roger Douglas is seen as a good or a bad thing.
Lots I've just said a lot. How much responsibility does
she bear?
Speaker 4 (17:32):
Yeah?
Speaker 3 (17:32):
I think I think there's a bigger fish to fry
for the government right now, and that is to get
the debt growth under control. As many people would know,
this government is still running deficits, which is where you're
spending more than you are bringing in via taxes largely,
(17:56):
and that's a dynamic which is going to take many.
Speaker 4 (17:59):
Years to resolve.
Speaker 3 (18:01):
There is obviously in the forecast a return to balance
and then a small surplus, but from where we're starting,
it's not a particularly strong position, and so this is
limiting the government's ability to do what it would normally
do to them, which is I think why you know,
perhaps people are looking for blame there, because in normal
(18:23):
tough times and recessionary times, your government steps in, it
cuts taxes, it spends a bit more, and it's part
of the cushioning mechanism to ensure that those downturns are
not as deep as they otherwise would have been if
you hadn't had the government being able to provide some stimulus.
So this time is very, very different because of that
(18:44):
debt situation, and what it's meant is that most of
the responsibility or the ability for there to be some
stimulus has fallen into the Central Bank. It's fallen into
the Reserve Bank of New Zealand. And look, they know
that that is the case. It's not as if they
are saying I don't believe they are saying they want
(19:06):
more help from government.
Speaker 4 (19:07):
I think they.
Speaker 3 (19:08):
Recognize what government is doing because it's important that that
growth and debt is moderated an event eventually stops. That's
a very important thing for us as as a country
that relies on the rest of the world for funding.
Speaker 4 (19:22):
But yeah, it's definitely unusual.
Speaker 3 (19:24):
It's an unusual setup to be only being able to
rely on the central Bank to provide that questioning because.
Speaker 2 (19:31):
And you touched on the whole thing about managing the
definit trying to get us out of deficit and the
debt situation, which if the government went hard by trying
to cut costs to avoid deficit, of course that's not
something that helps the economy either. It's so much there's
so much pushing pushing Paul, isn't there with us stuff
robbing Peter to pay Paul and vice versas sort of
(19:52):
thing equal and opposite reactions to whatever the government does.
Speaker 3 (19:57):
Yeah, I mean, look, I think what we are still
going through is the unwind from that COVID post COVID
stimulus period, where I think most people, even within government
would now look back with hindsight and say, perhaps the
stimulus was provided for too long through that period there.
Speaker 4 (20:17):
Was a definite need.
Speaker 3 (20:18):
Initially, of course, it was right, and the wage subsidies
scheme worked fantastically well in terms of keeping people attached
to the labor force so that when we reopened they
went back to work and the jobs that they had.
Speaker 4 (20:29):
You know, that was absolutely brilliant.
Speaker 3 (20:31):
What probably was less so was the continuation of that
program and the continuation of stimulus more generally when the
economy was clearly recovering. And so what we're doing now
is essentially paying the price for that. You know, they
were great times when the recovery took hold, you know.
Speaker 4 (20:51):
For many reasons.
Speaker 3 (20:53):
This is now the price of having such a sharp
recovery and a fast recovery, We've got to pay for it.
Speaker 2 (21:00):
It's difficult political question, too, wasn't it, because the politicians,
you know, the opposition right now, again this is all
Nikola Willis's fault. And the other analogy has been someone saying, well,
it's a bit like the Arsonist criticizing the fire brigade
once they've set far out of the house and going, oh, look,
you're struggling to put the fire out that I set.
I mean, it's I don't know how much you can
be drawn on those comments as well, because you know,
(21:22):
you imagine you like to try and be a little
bit circumspect on these things.
Speaker 3 (21:27):
Look, no, I think just objectively, you know, like I've
just said that if you were if you were to
do it all again, would there have been as much
stimulus provided by government in that post COVID period?
Speaker 2 (21:41):
I think objectively, no, How would you quantify that amount
of money in terms of how much extra we spent
that we maybe wouldn't at this time? Is it ten
thirty fifty billion, by.
Speaker 3 (21:53):
The way, that's what we're dealing with. Well, I mean,
I'm not sure about quantifying it, But I think what
people are more comfortable to think about is that that
process to come back to a balanced budget began too late.
(22:14):
You know that that wasn't probably given the emphasis that
it should have been at an early enough point. And
now it's yeah, it's just a longer, more drawn out
process we're having to go through.
Speaker 2 (22:25):
I guess with the Christmas period, When are we going
to actually get the next figures because everything sort of
starts to I don't know who goes on holiday. But
so we've got these figures a few days ago, So
let's say the middle of September, October, November, December. I
guess we should be getting an update again in December,
shouldn't we.
Speaker 4 (22:44):
Yeah.
Speaker 3 (22:45):
It's usually a really inconvenient last piece of data for
the year. Sometimes it basically comes often the week of Christmas,
and so you've got all these economists who are you
real keen on it, of course, trying to get their
head around it, but also know that either people have
(23:05):
already left for their holidays or they're thinking about their own.
So it's basically the last piece of data before Christmas,
is that GDP number.
Speaker 2 (23:14):
What chance is it that I think some of the
conversation I've heard with people wanting to defend the government
at the moment or stave off any accusations is that
we may actually be doing a lot better than these figures,
because the figures a Q two. Yeah, and so we
may actually be doing a lot better already, or somewhat
(23:35):
better or a tiny bit better.
Speaker 3 (23:38):
Yeah, I mean I think this is what ends to
happen when you've fallen by a larger amount than expected,
then you can come back off that bottom more quickly
than you had thought. But what we really should be
thinking about.
Speaker 4 (23:53):
Is more of it.
Speaker 3 (23:54):
In level terms, you know, the amount of output that's
getting produced in the economy. I'm not sure how much
it really changes that picture. I think the picture we're
still dealing with as an economy that's producing much less
than it's capable of producing. And that's the bit that's disinflationary.
(24:14):
That's the bit that's causing the job losses, that's the
bit that's causing unemployment to rise.
Speaker 4 (24:18):
And so it's really until we solve that.
Speaker 3 (24:21):
Which is going to be something probably not until the
end of next year at the very earliest.
Speaker 4 (24:27):
I would have thought that, yeah, that's when you can
get excited.
Speaker 3 (24:31):
But yeah, look, there will be probably a bounce back
in Q three, but we are already getting some numbers
that feed into the third quarter activity and they're not fantastic. So,
for example, our manufacturing sector has dropped back into contraction.
If you take the Business New Zealand Manufacturing pm I survey,
(24:54):
and we've got a services sector that remains in contraction
according to that survey. So yeah, it'll be better, but
it's I don't think it will be fantastic for a while.
Speaker 2 (25:05):
So let's look at that. The thing that the reserve
banks obviously in charge of is that OCR. How much
firstly the yes or no questions, will a lowier, lower
OCR really help our economy? And if so, how does
that actually work? How much can it make a difference
(25:26):
to New Zealand's economy in terms of is it because
it frees up more money for households who are resetting
their mortgages and they find they've got a bit more
money to spend, or and other? Is it all about
the borrowing borrowings cheaper, good, We've got more, I'm not
paying so much managing my debt.
Speaker 4 (25:43):
It's both.
Speaker 3 (25:44):
So you bang on on the borrowing and we're in
a fortunate position still where most of that borrowing is
it relatively short terms. People are still choosing to fix
around that kind of one year point, not not much
longer than that. So as the OCR falls and you
get mortgage rates declined, people will roll off those relatively
(26:04):
short dated fixed mortgages onto those lower rates. And as
you said, freeze up cash flow the ability for them
to spend and generate economic activity. But the other side is,
of course the savers who you know, as those interest
rates fall and we see that pass through, so the
OCR passes through and to term deposit rates. They then
(26:24):
have a reaction to that, and so it's less rewarding
for them to postpone consumption, you know, which is essentially
what saving is. They think differently about that choice, and
at the margin are likely to be more inclined to
spend than to save. So the two work together. But
(26:46):
your broad point is does twenty five basis points make
much of a difference?
Speaker 4 (26:52):
No? Is that really the answer? But but if what.
Speaker 2 (26:55):
We can that idea, it's going to go further than that.
Speaker 3 (26:58):
Yeah, yeah, I think that's if you think about the
way that the market has shifted. Just for example, so
the market took a while to really contemplate the idea
that the official cash rate would go below three percent. Yeah,
didn't really think it needed to. Probably the ZUM bank
in New Zealand was kind of on the same page.
And now we've shifted to because of this weakness and
(27:19):
activity we've been talking about. Now we've shifted to this
regime or this idea that actually maybe it could be
quite a bit lower, maybe something closer to two percent,
And that does change, that moves the needle, that that
kind of shift.
Speaker 2 (27:31):
What actually just reminds me of what is it now?
Is three point two five.
Speaker 4 (27:35):
Or three three? At the moment, that's three?
Speaker 2 (27:37):
Okay?
Speaker 4 (27:37):
Right?
Speaker 2 (27:39):
So okay, just a quick question. I don't want to
throw curve balls at you, but I was thinking, you know,
you're talking about savers versus borrowers. Do you have a
feel on how much of the economy is actually driven
by savers versus borrowers, Because intuitively, I would imagine that
(28:00):
it's driven more by borrowers because that's the stimulus that
we too. You give people more money in their pocket
because a larger part of the economy is as people
who've got money owing.
Speaker 3 (28:14):
What's interesting, So one statistic or rough rule of thumb
that comes to mind is if you take our economy
and think about those that own houses, those that own
them outright as an no mortgage, those that are mortgaged
in their home ownership, and those that don't own a
(28:36):
home at all and likely rent, it's about a third
or third or third, So a third of the country
is renting. Just roughly third of the country own their
own home and don't have a mortgage. Third of the
country your own home and have a mortgage. So yeah,
you've got quite a large transmission mechanism there coming from
(28:59):
those that are mortgaged. And so as interest ratesful, you know,
there's a freeing up cash flow and a response. But
that middle ground where you own your own home, that's
where the wealth effect is something that comes in. So
those lower interest rates, it's not so much about cash
flow to you, but if what they flow through to
is an appreciation, an increase in.
Speaker 4 (29:21):
Your house price value.
Speaker 3 (29:24):
You may not always, but on an aggregate it is.
It is something that we observe. You tend to be
more willing to spend when the value of.
Speaker 2 (29:33):
Your he and it's like a house. It's just like
my house is worth a cup and a mill. I
can imagine in twenty years timing on a downsize and
I'm going to spend about half of that once I've
sold yep, yep.
Speaker 3 (29:46):
And it's and it's something that is probably strong that
we we're one of the developed economies where that wealth
effect is stronger than in other places. Even In Australia,
I think what happens in Australia with the wealth effect
is it's more about the turnover in the housing market.
So as let's just play.
Speaker 4 (30:05):
The scenario scenario out.
Speaker 3 (30:07):
The official cash rate falls, mortgage rates decline. That provides
a bit of fuel to the housing market. As that
happens and prices rise, you also get turnover picking up
more sales. And it's when that happens people are doing
stuff like buying furniture, buying white ware, you know, fridges,
and washing machines, dryer and stuff like that. Yeah, exactly.
(30:31):
And it's that bit that you then see show up
in consumption, not so much that people are saying, like
you you know, you were outlaying there, Oh I hop
onto homestot co dot In z and a consumer house
prices up fifty grand, Okay, well I'm going to go
and spend some It's more the latter. In New Zealand, though,
I think what happens is we get both. We get
(30:51):
the turnover in the housing market, pick up, prices of
houses go up. People are doing all that stuff I
described like they are in a Aussie but then also
they are feeling more confident to spend and more willing
to spend because of the value of their property.
Speaker 2 (31:05):
That's fascinating. Of course we're not getting the wealth effect
right now because the housing market is fairly flat. I'll
tell you what. We'll come back and dig into the
housing market in just a moment and where that may
or may not be going given the given the new
news about GDP, potential changes in the ocr which make
borrowing cheaper, so maybe people have started thinking about buying ours.
Speaker 4 (31:28):
I don't know.
Speaker 2 (31:28):
First time buyers are certainly active. We're with Hamish Pepper,
he's head of multi asset and Global Investments at Harbor
Asset Management. We'll be back and just to take your
thoughts if you want. We've got lots of texts to
get into as well. I'll dig into with Hamish in
just a moment. Yes, welcome back to smart Money. Gosh,
time flies. It's actually quite fascinating this conversation. I hope
if you if you're listening, it gives you a more
(31:48):
confidence steering where you think things are going with the
cash rate, and perhaps you understand it a bit better.
But we have been talking a bit about doom and
bloom with the GDP, with Hamish Pepper from Harbor Asset Management.
But let's talk about a bright spot the external sector.
We've we've had some good you know, the farming. If
you're a farmer, you're well, I'm as expression rocking and rolling,
you're doing it all right.
Speaker 3 (32:10):
Yeah, Yeah, that's the real bright spot in the economy
for sure term. And it's not just dairy, right. I
think that kind of story has been well covered. Record
high Fonterra milk payout for the season just being and
we're on track for that to be the same again
in the season we've just started. And then all of
(32:30):
a sudden, Fonterra sell their consumer business and that's a
huge windfall for those dairy farmers who are part of
the cooperative. We estimate that the average shareholder is likely
to get something towards four hundred thousand dollars in the
hand six free yeah, as early as the first quarter
(32:53):
of next year.
Speaker 4 (32:53):
And so I think that income it's not all.
Speaker 3 (32:59):
It's a capital return and so they get the lot,
which is it's great because we had so if we
take one step back, I think one of the disappointments
from the first half of the year had been the
external sector not quite doing what it normally does, which
is to feed into the broader economy and help help
(33:20):
the recovery. And instead what we'd seen was a fair
bit of caution from farmers. This would include the Sheban
beef as well, who were experiencing good demand, good prices too,
but they were instead choosing to pay down debt. They
were accumulating cash balances in their accounts. But that's shifted
in the most recent data we get on those two things,
(33:42):
much more appetite to borrow now, much more appetite to
spend those accumulated cash balances. And then of course we
had the Fonterra news about the consumer business on top
of that. So I think there's a real hope that
now we might have the right set up where we
can get that more traditional external lead recovery. But it's
(34:02):
still going to take time, and there's a big hole,
you know, like we've talking about, but it's it's one
hundred percent helpful dynamic. Right.
Speaker 2 (34:08):
Let's take a call Jason.
Speaker 5 (34:09):
Hello, Yeah, hy here you go.
Speaker 2 (34:12):
Good.
Speaker 5 (34:14):
Yeah, I just have a question with with regards to
you know that the opposition are talking about capital gains
and in these sort of things and new taxes and
that it's labor in labor gain what how does it work?
I mean, does it does it work on your purchase
(34:34):
price or will it go on the retrospectively on your
purchase price, or will it go on the price that
the valuations are at the time of that they implement it.
Speaker 2 (34:45):
Oh, well, that's going to depend on the policy, I guess, Jason.
But how much in terms of tax changes. I guess
we can tie that into a conversation around is that
going to help the economy if we're going to start
taxing people little bit more?
Speaker 3 (34:57):
Yeah, I mean you can understand why this has perhaps
been considered. You know, we've talked about the largest deficits
and the growth in debt which is occurring, and a
way to help that dynamic improve would be an additional
tax and a capital gains taxes, something that's been talked
about for a long time, right, But I mean.
Speaker 2 (35:20):
The argument that the primary legal principle would be you
couldn't have a tax that was retrospective, I guess, which
was help answered Jason's question.
Speaker 4 (35:28):
Yeah, I think that's right.
Speaker 3 (35:30):
That would be my assumption that you know, anything that
to be announced would be would have a sort of
a line in the Sanders to win, it was to
apply from and then it would be the realized that yes,
it would have to be realized. Well, it didn't have
to be actually, but let's imagine it is. It's the
realized gains from that point onwards that you're then perhaps liable.
Speaker 4 (35:53):
For income tax or keptic gains tax to be paid.
Speaker 2 (35:55):
Good old adage, of course, you never tax your way
out of a recession. We could have thrown that out
as a talkback, Palk Actually, and I don't think you
do though, do you.
Speaker 4 (36:03):
Well, that's the thing.
Speaker 3 (36:04):
Yeah, it may well help on your deficit side, but
it's not going to be at all one way, because
if you hurt your economy, you're likely to then reduce
the tax revenue you're getting from other sources, you know,
become texts and GST for example.
Speaker 2 (36:21):
Yeah, and Jason, if you're still listening, that's probably a
conversation we'll explore as we get closer to election time,
depending on what policies are announced. Because I noticed that
there's some pole of New Zealanders suggests that most people
believe that in the next twenty or thirty years there
is going to be a capital gains tax or some
similar thing. But yeah, you'd have to ask a politician
(36:42):
that question. But yeah, the legal principle is you can't
be retrospective with your with your changes. Right. Just a
quick question before we head to the break. Can you
ask Camus why is it called negative growth and not
a decline? The language is just because we try and
be positive in a way. Haveing the word growth in
there somehow.
Speaker 4 (37:03):
Before it is a good point. It is a good point. Yeah,
probably not. We should just say declined, shouldn't we?
Speaker 2 (37:09):
That sounds so depressing though, because empire, you know, the
decline and the rise and decline or something of all
the Roman Empire. I don't know, it's a bit depressing anyway.
We'll be back in just to take those nine minutes
to sack News Talk z B where with Hamish papperhead
of multisset and Global Investments at Harbor Asset Management. I
did say we're going to get onto the property market,
but I've left lifted a bit late there, Hamish. But
(37:31):
with the OC anticipated cuts over the next two or
three rounds and the GDP figures being a bit slack,
what are you reckon about the housing market for a
quick take in a couple of minutes.
Speaker 3 (37:42):
I think the biggest thing we've learned in the housing
market term is interest rates are one thing. But if
you've got unemployment rising, you've got population growth falling because
migration into the country is dropping off, then it's still
going to be it's going to be a hard dynamic
to get much life out of out of housing. So
we need those other things to look a bit better
as well as those lower interest rates before things really
(38:05):
start to turn around.
Speaker 2 (38:07):
What do you think investors would need to see to
get back in the market, Because of course, if the
market's flat, that's not a bad time to buy, but
you want to know that it's not going to be
flatted too much longer.
Speaker 3 (38:17):
Yeah, I think that's the short answer here, is that
an expectation of capital gain from investors it's going to
need to be more than just what they're getting out
of their rental income because just insurance and rates are
so expensive, right, so much higher than they were five
years ago, that it's a higher hurdle now, I think
for the average property investor. So that capital game piece
(38:39):
is going to be important.
Speaker 2 (38:41):
So if you were just to have your reckons based
on what the other financial institutions are saying, we're reckoning,
and you've changed, You've informed me, so I've got a
clearer view of it. You reckon it's probably minimum point five,
but maybe point seventy five, and there are some calling
for one. So let's say probably ever, what next six
to nine months, we might see a points seventy five
(39:01):
cut took twenty five at a time. What do you reckon?
Speaker 4 (39:04):
Yeah, look, I.
Speaker 3 (39:04):
Think that's very reasonable, very reasonable to you know, and
I think what's happening is as sort of that expectation
is becoming embedded more broadly. That's part of what's driving people.
Speaker 4 (39:17):
You know.
Speaker 3 (39:17):
If you think about that mortgage piece, why are people
not reaching out to two and three year mortgages, It's
because they believe that we haven't yet bottomed when it
comes to the OCOA.
Speaker 2 (39:27):
Hey, hey Moos, great to chat to you, mate. I
really appreciate the time. Thanks so much, thanks for having
me and harbor Asset dot co, dot and z if
you want to go and check out the information they've
got at harbor Asset and we'll look forward to talking
with the folks from there again sometime soon.
Speaker 4 (39:42):
Right.
Speaker 2 (39:42):
Thanks to my producer tyre ward. If you've missed any
of the discussions this hour, in particular this hour on
the previous hours, go to news Talks to be dot
coded and zed. Look for the Weekend Collective and a
podcast to be up as running pretty much just before
I've finished speaking, So enjoy the rest of your weekend
and we'll catch again same time next weekend.
Speaker 1 (40:02):
For more from the Weekend Collective, listen live to news
to Org SeeDB weekends from three pm, or follow the
podcast on iHeartRadio.
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