May 28, 2025 • 17 mins
The Reserve Bank has cut the Official Cash Rate 25-basis-points -- to 3.25 percent.
That's the lowest it's been since August 2022 – though there were discussions about holding it.
Today's move is in line with most economists' expectations, and is another positive sign of the growth of the economy.
But there remains global uncertainty over President Trump’s policies and what impact his tariffs and trade wars could have.
Today on The Front Page, Infometrics chief forecaster, Gareth Kiernan is with us to dissect the decision to cut again, and what impact global politics could have on our economy.
Follow The Front Page on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.
You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Chelsea Daniels
Sound Engineer/Producer: Richard Martin
Producer: Ethan Sills
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hilda.
Speaker 2 (00:05):
I'm Chelsea Daniels and This is the Front Page, a
daily podcast presented by the New Zealand Herald. The Reserve
Bank has cut the official cash rate twenty five basis
points to three point twenty five percent.
Speaker 1 (00:23):
That's the lowest it's been.
Speaker 2 (00:25):
Since August twenty twenty two, though there were discussions about
holding it. Today's move is in line with most economists'
expectations and is another positive sign of the growth of
the economy, but there remains global uncertainty over US President
Donald Trump's policies and what impact his tariffs.
Speaker 1 (00:46):
And trade wars could have.
Speaker 2 (00:48):
Today on the Front Page, Infometrics chief forecaster Gareth Kinnan
is with us to dissect the decision to cut again
and what impact global politics could have on our economy. Gareth,
the OCEA has been cut again.
Speaker 1 (01:09):
Is that good news?
Speaker 3 (01:10):
It is good news for borrowers and mortgage holders expecting
to see the floating rates come down, and signals from
the Reserve Bank also suggesting that, if anything, there's still
more downside risks to interest rates than they previously allowed for,
so that could well see a bit more prescire coming
through in terms of fixed rates.
Speaker 4 (01:27):
Going down as well.
Speaker 2 (01:29):
Market pricing, and I guess nearly all the economists had
a twenty five basis point cut locked in, and that's
exactly what happened. What does it mean for our economy?
Speaker 3 (01:39):
I'm the Reserve Bank at the moment is effectively pushing
against a whole lot of uncertainty that we're getting coming
in from overseas with the international trade war and nobody
quite knowing how that's going to pan out. The Reserve
Bank themselves expressing a lot of uncertainty about what's going forward,
so they're I guess trying to provide as much support
for the economy.
Speaker 4 (01:57):
As they can.
Speaker 3 (01:58):
You know, New Zealand was in the early state pages
of an economic recovery after the sort of very tough
conditions through twenty twenty three and twenty twenty four. This
international trade will was come at a really bad time
in terms of sort of kneecapping that recovery.
Speaker 4 (02:10):
So the Bank is trying to help there, but.
Speaker 3 (02:12):
They have also recognized that position and downgraded their economic
forecasts as well, so it is kind of just just
trying to help the economy keep going, but you know,
not adding too much fuel to that fire.
Speaker 2 (02:23):
A and Z has forecast that had eventually dropped down
to two point five percent. Others are slightly more optimistic,
suggesting an endpoint at two point seventy five. This is
the sixth cut in a row. How low will it
go before it holds?
Speaker 1 (02:38):
Do you think, Yeah.
Speaker 3 (02:39):
We've got another interest rate cut factored in at the
next review in July is taking it down to three percent.
At this stage, we're still unsure about whether there will
be further cuts after that. We haven't formally built any
into our forecast, but recognizing that what is going on
internationally does create some downside risks.
Speaker 4 (02:56):
The problem for the Reserve.
Speaker 3 (02:57):
Bank at the moment is that they are also looking
though just a little bit of inflationary pressure coming through
the system. Inflation sort of picked up in the latest quarter.
Inflation expectations have lifted as well. Reserve bankers said that
that will be temporary, but they also do have in
their minds what happened three or four years ago where
they said inflation will be temporary then and it turned
(03:18):
out to be far from the case. So they're trying
to go down something of a medal path there. I
guess it's a case of playing things very much by
ear from here as to how things unfold.
Speaker 2 (03:26):
Well, I understand as well that this wasn't a unanimous decision.
There was some consideration of holding it at three point
five percent, The Reserve Bank said in considering the merits
of holding the OSA unchanged at three point five percent
for this meeting. Some members noted that this would allow
the committee to better assess whether increased economic policy uncertainty
(03:50):
was having a noticeable impact on household and firm behavior.
Now unpack that for us, Why would there have been
this sentiment.
Speaker 3 (03:58):
Yeah, Effectively, they're saying there's the international trade will happening,
the tariffs which may be on, they may be off.
Speaker 4 (04:04):
As a result of that.
Speaker 3 (04:05):
Uncertainty, there is an expectation that businesses potentially hold off
from investment decisions, they hold off from hiring decisions, so
the labor market might be slower to improve households as
a result. Maybe they hold back in terms of some
of the spending growth that might have been expected as well.
So all of those factors, it may well be that
the Reserve Bank does need to provide more support, does
(04:27):
need to cut interest rates further, But it's not a
clear case at the moment, and I think the Bank
will be looking at confidence surveys in particular over the
next month or two to get a better gauge of
just how seriously some of this uncertainty is weighing on
people's decision making.
Speaker 5 (04:45):
Internationally, developments look likely to lower global growth in the
horizon ahead of US. Both high tariffs and elevated policy
uncertainty is likely to weigh on domestic economic activity and
inflation pressures. However, there's considerable uncertainty around these judgments.
Speaker 2 (05:11):
I saw the Reserve Bank also said both tariffs and
increased policy uncertainty overseas are expected to moderate New Zealand's
economic recovery and reduce medium term pressures. And you've noted
that as well. To translate that, are we just waiting
to see what Trump will do next?
Speaker 3 (05:28):
Yeah, there is a bit of that, and you know
it can change from day to day very much in
terms of the news that comes out around that. But
in terms of that waiting, I mean, look, the Reserve
Bank has revised down their expectations for economic growth this year.
They do think there'll be a bit more of a
catch up when you get through into mid twenty six
and out into twenty twenty seven. But for now, the
expectation is that growth is just slower to recover as
(05:51):
a result of, like you say, waiting and seeing what.
Speaker 4 (05:54):
Might come of the trade war, what Trump will.
Speaker 3 (05:56):
Decide and how China is our largest trading partner, will
be affected.
Speaker 2 (06:00):
Where are the markets at now that initial flurry of
the Trump terrists has that passed?
Speaker 4 (06:06):
Yeah?
Speaker 3 (06:06):
Look, I mean markets if you go back to early April,
they felt substantially they had been falling anyway, but there
was a significant drop of course following the announcement on
Liberation Day. As we've seen the tariffs paused for ninety
days across most countries, we have seen markets rebound. But then,
of course we had last week the sort of announcement
(06:27):
or rhetoric around.
Speaker 4 (06:27):
Europe potentially being slapped with fifty percent.
Speaker 3 (06:30):
Terroriffs by the US, which again was reversed out pretty quickly,
but it's just enough to sort of keep markets unsettled, and.
Speaker 4 (06:36):
So there's still a fairly high degree of.
Speaker 3 (06:38):
Volatility and uncertainty on financial markets at the moment.
Speaker 4 (06:45):
Yeah, will be tariffs.
Speaker 6 (06:46):
What they've done is other nations happened stealing the movies,
the movie making capabilities from the United States, and I
said to a couple of people, what do you think.
I've done some very strong research jobs last week, and
we're making very few movies now Hollywood have been its
slow Now you have an incompetent, grossly in competent governor
(07:08):
that allowed that to happen. So I'm not kids claiming
other nations, but other nations, a lot of them have
stolen our movie in this and I'm saying, if they're
not willing to make a movie inside the United States,
and we should have a tariff when movies should come in.
Speaker 2 (07:27):
It does feel like we don't quite know where Trump
will go with the economy. You mentioned the steep tariffs
with the EU, then that's now been paused. The other
week he was posting about film tariffs that haven't really
gone anywhere. He's demanding now that Apple and Samsung move
phone production to the US. Are there any thoughts on
what his plans are or where this is all going.
(07:49):
He seems pretty committed to the idea of tariffs, even
though that didn't go down too well with the markets.
Speaker 3 (07:55):
Well, they're one of the beautiful things I think is
he Phraises is one of the most beautiful words.
Speaker 4 (08:00):
This is the tariff.
Speaker 3 (08:00):
So look, I genuinely don't know what his endgame is.
I don't know if he even knows what his endgame
is either. I mean, certainly the volatility on financial markets
has caused of a lot of unsettlement. But what I
struggle with is take the China one as an example,
where you know, he's trumpeted the fact that we've got
the tariffs back down to thirty and ten percent across
(08:21):
the two countries. Well, that's where we were six weeks
ago before all of this kind of started, and you
back there, haven't achieved anything, and we don't quite know
what the end game is. So you know, there's certainly
a sense that he wants to, you know, bring employment
and production back to America, but the reality is that
can't happen overnight, and there's a hell of a lot
(08:41):
of pain and difficulty to be worked through before you
even get close to getting to that point where the
American economy can maybe be a bit more self sustaining
in some of the areas. And let's be real, it's
not going to be self sustaining in all the areas
he's been targeting, but some of them even the sort
of most optimistic ones. It is going to take time
for that sort of factory production to move back closer
(09:02):
to home.
Speaker 2 (09:02):
And I can imagine if Apple phones and Samsung phones
and devices are manufactured in the US, I mean, we
could be paying eight grand for an iPhone in future,
right well.
Speaker 3 (09:13):
And I think that was the sort of maybe it's
a bit of a shock to them, but you know,
the sort of analysis done that the price was going
to be two or three times what it was for
coming out of China because America just didn't have the
sort of the systems in place and the technology and
all that sort of stuff to produce at that rate.
And that's before you even start to think about some
of the retaliatory measures that China had taken in terms
(09:35):
of limiting the sort of exports of rare elements and
earth materials to the US to try and sort of
undermine the goal that's there. So, yeah, there's real potential
inflationary impacts or sort of shocks to the system in
terms of some of those products potentially becoming a lot
more expensive if you go down the tariff route.
Speaker 2 (10:03):
It'd be pretty difficult to talk about the economy without
mentioning the G word, and that's growth. Prime Minister Christopher
Luckxon has been pretty quick to praise National's strong economic
management for the OCEI Cup. But how much can actually
be attributable to the government. How much is just dumb
luck and how much is just controlled well, I mean.
Speaker 3 (10:24):
The economy was already struggling, of course, already slowing down
before National came in. We've seen you know, big interest
rate rises through twenty twenty two and into twenty twenty
three from the Reserve Bank just to try and get
that sort of excess heat and excess.
Speaker 4 (10:37):
Demand out of the economy.
Speaker 3 (10:39):
Anyway, I guess in terms of government policy, where potentially
the government can take some credit as they have obviously
taken a tight rain, a tight approach around fiscal spending
and continuing to sort of target savings through there. Now,
that's not great from an economic growth perspective in the
near term, because you know, the economy typically when it's
(10:59):
slowing down, you'd look to the government to provide a
bit of support to cushion the downturn that you're having.
It's not appropriate for government to be doing that at
the moment given the extent of growth and government spending
that we've had previously. But it does mean that if
the government is cutting back, it does mean the Reserve
Bank does have a bit more scope to maybe bring
those interest rates down because across the economy, as the
(11:21):
sort of excess demand, the excess heat through the economy
is being wound back a bit more quickly than if
the government was still throwing money out the door.
Speaker 2 (11:29):
With Gay abandon right, So the government does deserve a
part on the.
Speaker 4 (11:33):
Back look to some degree.
Speaker 3 (11:36):
Look, there's a consistency at the moment, I think between
fiscal policy and monetary policy, or there has been in
terms of trying to get that economy back, as I say,
at a more sort of sustainable growth rate than what
we've had previously.
Speaker 4 (11:48):
And I think, look if interest if.
Speaker 3 (11:50):
The government was spending more than it is at the moment,
then there is potential that interest rates wouldn't be able
to be as cut by as much as they have been.
Speaker 7 (12:00):
This budget supports the economic recovery while also taking a
longer term view with initiatives to boost investment, growth and savings.
Kiwis have been battling through an extended period of high inflation,
high interest rates, and low growth times are still tough
for many. The good news is that strong economic and
(12:25):
physical management is ensuring our recovery is underway, supported by
lower interest rates and a strong export performance.
Speaker 2 (12:37):
What about the impact of the budget that has emphasized
a lot of individual responsibility towards things like savings and
looking after your kids when they grow up. What impact
do you forecast that having on the budget in the
short to medium term.
Speaker 3 (12:52):
Yeah, I mean, I think in terms of the way
the economy is a performing going forward. Probably the sort
of headline grabber was around in VS Boost and it's
been interesting to see the forecast of Treasury particular around that,
where they've said, okay, our baseline forecasts for investment by
businesses going forward will lower because of global conditions and
the uncertainty out there. But when we bring in the
(13:14):
investment boost policy, we do think it just will encourage
a bit more investment. And while that doesn't necessarily impact
growth a great deal immediately, it does facilitate more growth
a bit further down the track. So for me, that's
probably one of the key parts of getting a bit
more momentum into the economy. Not necessarily this year, but
if we look forward to twenty twenty six and twenty
(13:35):
seven just helps to provide a bit more growth coming through.
Speaker 1 (13:38):
We're always looking overseas.
Speaker 2 (13:39):
First it was COVID and now we're just on the
edge of our seats looking to see what Trump does
and how that affects our economy. Because we live in
such a globally connected world. Is there any escaping those
overseas pressures?
Speaker 4 (13:55):
Do?
Speaker 1 (13:55):
We just have to live with them?
Speaker 4 (13:56):
Pretty much, we do.
Speaker 3 (13:57):
And that's not just the fact that the the whole
global economy is interconnection, but from a New Zealand's perspective,
you know, we are so reliant on exports, is a
key part of our economy and driving our growth story,
and certainly at the moment when we look at the
expected recovery in New Zealand over the next twelve to
eighteen months, two key contributors to that right. One is
(14:20):
lower interest rates putting more money back into household pockets.
And you know, eventually over time as they roll off
higher fixed rate, as the labor market turns and consumer
confidence improves, more of that money will be spent and
flow through the economy. But the probably even bigger aspect
of the recovery we're looking at at the moment is
just around the sort of high export prices for the
(14:40):
likes of dairy products, meat, horticulture. Those are all really
good levels and we're expecting that money to flow through
into provincial economies over the next.
Speaker 4 (14:49):
Year or so and stimulate more growth. It's quite different
to the sort of recovery that New Zealand has had.
Speaker 3 (14:55):
From an economic perspective, probably over the last thirty years,
where a lot of the time our economic fortunes have
been driven by changes in migration and population growth and
that moving around.
Speaker 4 (15:07):
Quite a lot. This time around, it it's more like
an early nineteen nineties or even prior to that recovery,
where it is those export prices, that export revenue coming in,
there's more.
Speaker 3 (15:16):
Money for farmers, they get out and spend it, and
eventually it flows through from provincial areas and flows through
into the urban centers as well. So yeah, from that perspective,
g the global economy is a real sort of lynchpin
of where New Zealand is going at the moment.
Speaker 2 (15:31):
Gareth, is there a fear that the positive trajectory of
our economy has hit a kind of juncture because there
was acceleration that we saw at the end of twenty
twenty four, even the beginning of this year. But now
we've got all this global unpredictability.
Speaker 1 (15:46):
What do you think will happen next?
Speaker 3 (15:48):
Yeah, there is a sentence I get from getting out
there and talking to businesses that late twenty four early
twenty twenty five, the data we were getting through, the
messages we were getting from talking to people were they
weren't massively positive, but there was certainly an improvement on
the sort of wholesale pessimism that we'd had through much
twenty twenty four. And I get a sense just the
last three or four weeks again talking to people, that
(16:09):
that positivity has just evaporated away a bit. That's not
necessarily to disappeared across all parts of the economy, but
certainly some of the people I talked to are going, Yeah,
it's just it seems to just.
Speaker 4 (16:20):
That momentum have petered out a little bit.
Speaker 3 (16:23):
And I think that's partly a function of those international
events that we've talked about and the tariffs and the
uncertainty associated with that, but it is also partly a
function that you know, there's still aspects within the new
Zealand economy, where take consumer confidence for example, it's improved,
but it's still not that great. People still don't feel
fantastic about their own financial situation. So it's almost a
(16:44):
sense of some of that turnaround or emerging turnaround we
saw in late twenty twenty four was maybe a little
bit premature and some of the fundamentals behind it still
need to improve further. Get the labor market improving a bit,
get employment growth picking up, and then you'll have a
bit more solid base to start accelerating economic growth from
notwithstanding what may be happening internationally.
Speaker 2 (17:06):
Of course, thanks for joining us, Gareth, Thank you very much,
my pleasure. That's it for this episode of The Front Page.
You can read more about today's stories and extensive news
coverage at enzidherld dot co dot nz.
Speaker 1 (17:23):
The Front Page is produced by Ethan.
Speaker 2 (17:25):
Sills and Richard Martin, who is also our sound engineer.
Speaker 1 (17:30):
I'm Chelsea Daniels.
Speaker 2 (17:32):
Subscribe to The Front Page on iHeartRadio or wherever you
get your podcasts, and tune in tomorrow for another look
behind the headlines.
Hilda.
Speaker 2 (00:05):
I'm Chelsea Daniels and This is the Front Page, a
daily podcast presented by the New Zealand Herald. The Reserve
Bank has cut the official cash rate twenty five basis
points to three point twenty five percent.
Speaker 1 (00:23):
That's the lowest it's been.
Speaker 2 (00:25):
Since August twenty twenty two, though there were discussions about
holding it. Today's move is in line with most economists'
expectations and is another positive sign of the growth of
the economy, but there remains global uncertainty over US President
Donald Trump's policies and what impact his tariffs.
Speaker 1 (00:46):
And trade wars could have.
Speaker 2 (00:48):
Today on the Front Page, Infometrics chief forecaster Gareth Kinnan
is with us to dissect the decision to cut again
and what impact global politics could have on our economy. Gareth,
the OCEA has been cut again.
Speaker 1 (01:09):
Is that good news?
Speaker 3 (01:10):
It is good news for borrowers and mortgage holders expecting
to see the floating rates come down, and signals from
the Reserve Bank also suggesting that, if anything, there's still
more downside risks to interest rates than they previously allowed for,
so that could well see a bit more prescire coming
through in terms of fixed rates.
Speaker 4 (01:27):
Going down as well.
Speaker 2 (01:29):
Market pricing, and I guess nearly all the economists had
a twenty five basis point cut locked in, and that's
exactly what happened. What does it mean for our economy?
Speaker 3 (01:39):
I'm the Reserve Bank at the moment is effectively pushing
against a whole lot of uncertainty that we're getting coming
in from overseas with the international trade war and nobody
quite knowing how that's going to pan out. The Reserve
Bank themselves expressing a lot of uncertainty about what's going forward,
so they're I guess trying to provide as much support
for the economy.
Speaker 4 (01:57):
As they can.
Speaker 3 (01:58):
You know, New Zealand was in the early state pages
of an economic recovery after the sort of very tough
conditions through twenty twenty three and twenty twenty four. This
international trade will was come at a really bad time
in terms of sort of kneecapping that recovery.
Speaker 4 (02:10):
So the Bank is trying to help there, but.
Speaker 3 (02:12):
They have also recognized that position and downgraded their economic
forecasts as well, so it is kind of just just
trying to help the economy keep going, but you know,
not adding too much fuel to that fire.
Speaker 2 (02:23):
A and Z has forecast that had eventually dropped down
to two point five percent. Others are slightly more optimistic,
suggesting an endpoint at two point seventy five. This is
the sixth cut in a row. How low will it
go before it holds?
Speaker 1 (02:38):
Do you think, Yeah.
Speaker 3 (02:39):
We've got another interest rate cut factored in at the
next review in July is taking it down to three percent.
At this stage, we're still unsure about whether there will
be further cuts after that. We haven't formally built any
into our forecast, but recognizing that what is going on
internationally does create some downside risks.
Speaker 4 (02:56):
The problem for the Reserve.
Speaker 3 (02:57):
Bank at the moment is that they are also looking
though just a little bit of inflationary pressure coming through
the system. Inflation sort of picked up in the latest quarter.
Inflation expectations have lifted as well. Reserve bankers said that
that will be temporary, but they also do have in
their minds what happened three or four years ago where
they said inflation will be temporary then and it turned
(03:18):
out to be far from the case. So they're trying
to go down something of a medal path there. I
guess it's a case of playing things very much by
ear from here as to how things unfold.
Speaker 2 (03:26):
Well, I understand as well that this wasn't a unanimous decision.
There was some consideration of holding it at three point
five percent, The Reserve Bank said in considering the merits
of holding the OSA unchanged at three point five percent
for this meeting. Some members noted that this would allow
the committee to better assess whether increased economic policy uncertainty
(03:50):
was having a noticeable impact on household and firm behavior.
Now unpack that for us, Why would there have been
this sentiment.
Speaker 3 (03:58):
Yeah, Effectively, they're saying there's the international trade will happening,
the tariffs which may be on, they may be off.
Speaker 4 (04:04):
As a result of that.
Speaker 3 (04:05):
Uncertainty, there is an expectation that businesses potentially hold off
from investment decisions, they hold off from hiring decisions, so
the labor market might be slower to improve households as
a result. Maybe they hold back in terms of some
of the spending growth that might have been expected as well.
So all of those factors, it may well be that
the Reserve Bank does need to provide more support, does
(04:27):
need to cut interest rates further, But it's not a
clear case at the moment, and I think the Bank
will be looking at confidence surveys in particular over the
next month or two to get a better gauge of
just how seriously some of this uncertainty is weighing on
people's decision making.
Speaker 5 (04:45):
Internationally, developments look likely to lower global growth in the
horizon ahead of US. Both high tariffs and elevated policy
uncertainty is likely to weigh on domestic economic activity and
inflation pressures. However, there's considerable uncertainty around these judgments.
Speaker 2 (05:11):
I saw the Reserve Bank also said both tariffs and
increased policy uncertainty overseas are expected to moderate New Zealand's
economic recovery and reduce medium term pressures. And you've noted
that as well. To translate that, are we just waiting
to see what Trump will do next?
Speaker 3 (05:28):
Yeah, there is a bit of that, and you know
it can change from day to day very much in
terms of the news that comes out around that. But
in terms of that waiting, I mean, look, the Reserve
Bank has revised down their expectations for economic growth this year.
They do think there'll be a bit more of a
catch up when you get through into mid twenty six
and out into twenty twenty seven. But for now, the
expectation is that growth is just slower to recover as
(05:51):
a result of, like you say, waiting and seeing what.
Speaker 4 (05:54):
Might come of the trade war, what Trump will.
Speaker 3 (05:56):
Decide and how China is our largest trading partner, will
be affected.
Speaker 2 (06:00):
Where are the markets at now that initial flurry of
the Trump terrists has that passed?
Speaker 4 (06:06):
Yeah?
Speaker 3 (06:06):
Look, I mean markets if you go back to early April,
they felt substantially they had been falling anyway, but there
was a significant drop of course following the announcement on
Liberation Day. As we've seen the tariffs paused for ninety
days across most countries, we have seen markets rebound. But then,
of course we had last week the sort of announcement
(06:27):
or rhetoric around.
Speaker 4 (06:27):
Europe potentially being slapped with fifty percent.
Speaker 3 (06:30):
Terroriffs by the US, which again was reversed out pretty quickly,
but it's just enough to sort of keep markets unsettled, and.
Speaker 4 (06:36):
So there's still a fairly high degree of.
Speaker 3 (06:38):
Volatility and uncertainty on financial markets at the moment.
Speaker 4 (06:45):
Yeah, will be tariffs.
Speaker 6 (06:46):
What they've done is other nations happened stealing the movies,
the movie making capabilities from the United States, and I
said to a couple of people, what do you think.
I've done some very strong research jobs last week, and
we're making very few movies now Hollywood have been its
slow Now you have an incompetent, grossly in competent governor
(07:08):
that allowed that to happen. So I'm not kids claiming
other nations, but other nations, a lot of them have
stolen our movie in this and I'm saying, if they're
not willing to make a movie inside the United States,
and we should have a tariff when movies should come in.
Speaker 2 (07:27):
It does feel like we don't quite know where Trump
will go with the economy. You mentioned the steep tariffs
with the EU, then that's now been paused. The other
week he was posting about film tariffs that haven't really
gone anywhere. He's demanding now that Apple and Samsung move
phone production to the US. Are there any thoughts on
what his plans are or where this is all going.
(07:49):
He seems pretty committed to the idea of tariffs, even
though that didn't go down too well with the markets.
Speaker 3 (07:55):
Well, they're one of the beautiful things I think is
he Phraises is one of the most beautiful words.
Speaker 4 (08:00):
This is the tariff.
Speaker 3 (08:00):
So look, I genuinely don't know what his endgame is.
I don't know if he even knows what his endgame
is either. I mean, certainly the volatility on financial markets
has caused of a lot of unsettlement. But what I
struggle with is take the China one as an example,
where you know, he's trumpeted the fact that we've got
the tariffs back down to thirty and ten percent across
(08:21):
the two countries. Well, that's where we were six weeks
ago before all of this kind of started, and you
back there, haven't achieved anything, and we don't quite know
what the end game is. So you know, there's certainly
a sense that he wants to, you know, bring employment
and production back to America, but the reality is that
can't happen overnight, and there's a hell of a lot
(08:41):
of pain and difficulty to be worked through before you
even get close to getting to that point where the
American economy can maybe be a bit more self sustaining
in some of the areas. And let's be real, it's
not going to be self sustaining in all the areas
he's been targeting, but some of them even the sort
of most optimistic ones. It is going to take time
for that sort of factory production to move back closer
(09:02):
to home.
Speaker 2 (09:02):
And I can imagine if Apple phones and Samsung phones
and devices are manufactured in the US, I mean, we
could be paying eight grand for an iPhone in future,
right well.
Speaker 3 (09:13):
And I think that was the sort of maybe it's
a bit of a shock to them, but you know,
the sort of analysis done that the price was going
to be two or three times what it was for
coming out of China because America just didn't have the
sort of the systems in place and the technology and
all that sort of stuff to produce at that rate.
And that's before you even start to think about some
of the retaliatory measures that China had taken in terms
(09:35):
of limiting the sort of exports of rare elements and
earth materials to the US to try and sort of
undermine the goal that's there. So, yeah, there's real potential
inflationary impacts or sort of shocks to the system in
terms of some of those products potentially becoming a lot
more expensive if you go down the tariff route.
Speaker 2 (10:03):
It'd be pretty difficult to talk about the economy without
mentioning the G word, and that's growth. Prime Minister Christopher
Luckxon has been pretty quick to praise National's strong economic
management for the OCEI Cup. But how much can actually
be attributable to the government. How much is just dumb
luck and how much is just controlled well, I mean.
Speaker 3 (10:24):
The economy was already struggling, of course, already slowing down
before National came in. We've seen you know, big interest
rate rises through twenty twenty two and into twenty twenty
three from the Reserve Bank just to try and get
that sort of excess heat and excess.
Speaker 4 (10:37):
Demand out of the economy.
Speaker 3 (10:39):
Anyway, I guess in terms of government policy, where potentially
the government can take some credit as they have obviously
taken a tight rain, a tight approach around fiscal spending
and continuing to sort of target savings through there. Now,
that's not great from an economic growth perspective in the
near term, because you know, the economy typically when it's
(10:59):
slowing down, you'd look to the government to provide a
bit of support to cushion the downturn that you're having.
It's not appropriate for government to be doing that at
the moment given the extent of growth and government spending
that we've had previously. But it does mean that if
the government is cutting back, it does mean the Reserve
Bank does have a bit more scope to maybe bring
those interest rates down because across the economy, as the
(11:21):
sort of excess demand, the excess heat through the economy
is being wound back a bit more quickly than if
the government was still throwing money out the door.
Speaker 2 (11:29):
With Gay abandon right, So the government does deserve a
part on the.
Speaker 4 (11:33):
Back look to some degree.
Speaker 3 (11:36):
Look, there's a consistency at the moment, I think between
fiscal policy and monetary policy, or there has been in
terms of trying to get that economy back, as I say,
at a more sort of sustainable growth rate than what
we've had previously.
Speaker 4 (11:48):
And I think, look if interest if.
Speaker 3 (11:50):
The government was spending more than it is at the moment,
then there is potential that interest rates wouldn't be able
to be as cut by as much as they have been.
Speaker 7 (12:00):
This budget supports the economic recovery while also taking a
longer term view with initiatives to boost investment, growth and savings.
Kiwis have been battling through an extended period of high inflation,
high interest rates, and low growth times are still tough
for many. The good news is that strong economic and
(12:25):
physical management is ensuring our recovery is underway, supported by
lower interest rates and a strong export performance.
Speaker 2 (12:37):
What about the impact of the budget that has emphasized
a lot of individual responsibility towards things like savings and
looking after your kids when they grow up. What impact
do you forecast that having on the budget in the
short to medium term.
Speaker 3 (12:52):
Yeah, I mean, I think in terms of the way
the economy is a performing going forward. Probably the sort
of headline grabber was around in VS Boost and it's
been interesting to see the forecast of Treasury particular around that,
where they've said, okay, our baseline forecasts for investment by
businesses going forward will lower because of global conditions and
the uncertainty out there. But when we bring in the
(13:14):
investment boost policy, we do think it just will encourage
a bit more investment. And while that doesn't necessarily impact
growth a great deal immediately, it does facilitate more growth
a bit further down the track. So for me, that's
probably one of the key parts of getting a bit
more momentum into the economy. Not necessarily this year, but
if we look forward to twenty twenty six and twenty
(13:35):
seven just helps to provide a bit more growth coming through.
Speaker 1 (13:38):
We're always looking overseas.
Speaker 2 (13:39):
First it was COVID and now we're just on the
edge of our seats looking to see what Trump does
and how that affects our economy. Because we live in
such a globally connected world. Is there any escaping those
overseas pressures?
Speaker 4 (13:55):
Do?
Speaker 1 (13:55):
We just have to live with them?
Speaker 4 (13:56):
Pretty much, we do.
Speaker 3 (13:57):
And that's not just the fact that the the whole
global economy is interconnection, but from a New Zealand's perspective,
you know, we are so reliant on exports, is a
key part of our economy and driving our growth story,
and certainly at the moment when we look at the
expected recovery in New Zealand over the next twelve to
eighteen months, two key contributors to that right. One is
(14:20):
lower interest rates putting more money back into household pockets.
And you know, eventually over time as they roll off
higher fixed rate, as the labor market turns and consumer
confidence improves, more of that money will be spent and
flow through the economy. But the probably even bigger aspect
of the recovery we're looking at at the moment is
just around the sort of high export prices for the
(14:40):
likes of dairy products, meat, horticulture. Those are all really
good levels and we're expecting that money to flow through
into provincial economies over the next.
Speaker 4 (14:49):
Year or so and stimulate more growth. It's quite different
to the sort of recovery that New Zealand has had.
Speaker 3 (14:55):
From an economic perspective, probably over the last thirty years,
where a lot of the time our economic fortunes have
been driven by changes in migration and population growth and
that moving around.
Speaker 4 (15:07):
Quite a lot. This time around, it it's more like
an early nineteen nineties or even prior to that recovery,
where it is those export prices, that export revenue coming in,
there's more.
Speaker 3 (15:16):
Money for farmers, they get out and spend it, and
eventually it flows through from provincial areas and flows through
into the urban centers as well. So yeah, from that perspective,
g the global economy is a real sort of lynchpin
of where New Zealand is going at the moment.
Speaker 2 (15:31):
Gareth, is there a fear that the positive trajectory of
our economy has hit a kind of juncture because there
was acceleration that we saw at the end of twenty
twenty four, even the beginning of this year. But now
we've got all this global unpredictability.
Speaker 1 (15:46):
What do you think will happen next?
Speaker 3 (15:48):
Yeah, there is a sentence I get from getting out
there and talking to businesses that late twenty four early
twenty twenty five, the data we were getting through, the
messages we were getting from talking to people were they
weren't massively positive, but there was certainly an improvement on
the sort of wholesale pessimism that we'd had through much
twenty twenty four. And I get a sense just the
last three or four weeks again talking to people, that
(16:09):
that positivity has just evaporated away a bit. That's not
necessarily to disappeared across all parts of the economy, but
certainly some of the people I talked to are going, Yeah,
it's just it seems to just.
Speaker 4 (16:20):
That momentum have petered out a little bit.
Speaker 3 (16:23):
And I think that's partly a function of those international
events that we've talked about and the tariffs and the
uncertainty associated with that, but it is also partly a
function that you know, there's still aspects within the new
Zealand economy, where take consumer confidence for example, it's improved,
but it's still not that great. People still don't feel
fantastic about their own financial situation. So it's almost a
(16:44):
sense of some of that turnaround or emerging turnaround we
saw in late twenty twenty four was maybe a little
bit premature and some of the fundamentals behind it still
need to improve further. Get the labor market improving a bit,
get employment growth picking up, and then you'll have a
bit more solid base to start accelerating economic growth from
notwithstanding what may be happening internationally.
Speaker 2 (17:06):
Of course, thanks for joining us, Gareth, Thank you very much,
my pleasure. That's it for this episode of The Front Page.
You can read more about today's stories and extensive news
coverage at enzidherld dot co dot nz.
Speaker 1 (17:23):
The Front Page is produced by Ethan.
Speaker 2 (17:25):
Sills and Richard Martin, who is also our sound engineer.
Speaker 1 (17:30):
I'm Chelsea Daniels.
Speaker 2 (17:32):
Subscribe to The Front Page on iHeartRadio or wherever you
get your podcasts, and tune in tomorrow for another look
behind the headlines.
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