Overdoing the gloom

Overdoing the gloom

“We are straining to see the economic slowdown.” That’s the view of Andrew Gawith, a senior economist at Infometrics – a company specialising in economic forecasting. “Certainly, talk of a ‘hard landing’ – implying the economy will come to a sudden halt, and some markets will crash – is way too gloomy. Households look altogether too perky for such dire predictions to come true any time soon.”

Despite a slight rise in the rate of unemployment the labour market remains tight. Skill shortages persist, and wages are rising – total earnings over the March quarter were 7% higher than last year. Mr Gawith says there is also a good chance that unions will win real wage gains for their members over the remainder of this year. “The determination to secure hefty pay increases springs, to a large degree, from the fact that workers are much less fearful about losing their jobs than they have been for at least a decade.”

Although jobs and incomes look secure, the residential property market could punch a hole in household wealth. “Our view is that average house prices will fall by around as much as 5% over the next two years. That would be a nasty surprise to those who have recently purchased a new home, but it pales into insignificance for the average homeowner who is wallowing in a 60% capital gain since 2001.”

Mr Gawith expects tighter monetary conditions to take their toll on growth over the next 12-18 months, but finds it difficult to see the economy sliding into a ditch with households looking so comfortable, the government with pots of money to spend, and New Zealand enjoying some of its highest terms of trade in decades. Infometrics predicts that economic growth will remain around 3%pa over the next two years. “A hard landing would require shocks that as yet nobody has been bold enough to predict.”

See Infometrics’ May newsletter (www.infometrics.co.nz/nonhtml/news0505.pdf), which will be available on our website from the morning of Thursday 19 May.

ENDS

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