Brad Olsen: Infometrics Principal Economist on unemployment figures being expected to grow

The Reserve Bank has warned the economic downturn is expected to get worse before it gets better, with unemployment being expected to worsen.

The bank's biannual Financial Stability Report says unemployment will peak at 5.4 percent by 2025.

Infometrics Principal Economist Brad Olsen says there are better economic times on the horizon - but there'll be 6-9 months of pain first. 

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Episode Transcript

Speaker 1 (00:00):
Brad Olson Informetrics Principal Economists. Hey, Brad Good evening, Brad listen.
So we've seen the Reserve Bank's Financial Stability Report out today.
They are still holding out. I think this is interesting.
Haven't changed their prediction on what the unemployment rate's going
to do, held it since about August. Haven't that five
point four percent?

Speaker 2 (00:17):
Yes, that's right, and in a sense, I mean it's
also important that it still is going to take a
while to get to that point. That five point four
percent peak is what they think will get to sort
of over the first six months of twenty twenty five.
So again it doesn't come through immediately. What was interesting
looking through the Financial Stability Report was just how much
they highlighted that. Look, the domestic economy obviously in a

(00:38):
challenging position, and even with interest rates coming down and
starting to fall, the fact that you'll still have further
increases in unemployment. Obviously it's pretty difficult for households to
afford their mortgage at that point. So the Reserve banks
still actually thinking that the proportion of loans that are
non performing and people that can't pay their loans is
expected to increase. It's currently at point five percent of

(01:01):
total loan values. That's the highest it's been since around
sort of twenty fourteen or so. So you are really
getting this message from the Reserve Bank, and I think
it is important that although interest rates are starting to
come down and there are better times on the horizon,
the economy is still in a pretty difficult place for
the next six to nine months until those lower interest
rates come through.

Speaker 1 (01:20):
Now, we were chatting yesterday to Steve Yeukovich, the CEO
of Kiwi Bank. He says he's picking later this month
a fifty basis point cut no more, because it's just
too much at seventy five.

Speaker 2 (01:31):
What do you think. Look, I think a lot might
depend on actually on tomorrow, not the US election outcome,
but the latest labor market data out from stats n Z.
We're expecting a five percent unemployment rate to come through.
But I think in a sense, if there is a
lot of the numbers are pretty consistent at the moment

(01:51):
that the economy continues to get weaker. If you saw
the unemployment rate though that sort of was quite a
bit above where the market and the Reserve Bank we're thinking,
if you saw wage pressures starting to drop a lot
quicker than might have been expected. If you see that
job hiring figure raally come back, and it has started
two in recent times. We were talking just last week
about how there are twenty thousand fewer jobs in the economy.

(02:14):
So if all of that data was particularly weaker, I
think it could force the bank to still look at
seventy five, and I sort of hope that they do
at least toss it up in their meeting coming up
later this month. But I mean the central view and
my central view as well, is still around that fifty
basis points. That would be sort of the current normal expectation.
But again, I think all eyes are on the data,

(02:36):
all eyes also on the rest of the world. Not
only is there an election in the US this week,
there's also a new announcement from the US Federal Reserve
over what they want to do with interest rates, So
all of that, I think we'll go into the reserve
banks thinking. But yep, at the moment, fifty is still
I think where the smart money is. Although my Melbourne
cup pick didn't go well today, so it's always a

(02:56):
challenging decision, Right.

Speaker 1 (02:57):
Do you want to have a pick at the US election?

Speaker 2 (02:59):
Then? Ah, jeez, I really don't know what way it's
going to go. I feel like either way, you've got
some pretty different outcomes that are coming through. I think
by a slim, slim margin, I think it'll go to Harris.

Speaker 1 (03:11):
What that is wishful thinking, Brad, isn't it?

Speaker 2 (03:15):
Oh? Well? I mean I think put it this way.
If it goes to Trump, I think there's a huge
question that can't really be answered tomorrow or even in
the next couple of weeks as to what that means
for the New Zealand economy the very least, let alone
the global economy. Of course, inauguration doesn't happen till twenty
twentieth of January twenty twenty five, so a lot of
water to go under the bridge no matter what happens

(03:36):
in the next twenty four hours.

Speaker 1 (03:37):
So you make a very good point, Hey, Brad, Thank
you very much. Brad Olson infa Metrics principal economist. Poor Brad,
I'm just like stabbing at him with that wishful thinking.
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