We’ll definitely turn a corner then, right?
The data will improve, and confidence will return … things will get better … you’ll find work, I’ll get promoted … we’ll move out of the shelter, buy a bigger house and live in the suburbs.
Wait, what? Sorry, that’s Tracy Chapman’s Fast Car (or Luke Combs for you millennials).
The song is something of an anthem for blind optimism and always struck me as brutally ironic (well, Chapman’s version at least).
Perhaps they drove off to a better future and a big house in the suburbs, but they probably didn’t.
The bottom line is that the New Zealand economy was supposed to be better by now.
At 3%, the OCR has already been lowered by 250 basis points in just over a year.
That’s a significant drop in a short space of time.
In his OCR preview, Harbour Asset Management head of fixed income Mark Brown sums up the problem: “Rate cuts seem to have had little impact on the economy so far.
“The housing market is generally not responding to rate cuts as we have seen it do during previous rate cut cycles (especially in Auckland and Wellington). Both consumers and employers still seem to be cautious.”
He notes the Reserve Bank of New Zealand (RBNZ) “appears to have been surprised by quite how soft the economy became through the middle of the year”.
Let’s face it, we were all surprised.
We wouldn’t have adopted the “Survive till 25″ catchphrase if we’d known what was coming.
So what’s gone wrong?
Last month, the Government tried to tell us the shock of the United States tariffs in April was to blame for the tanking second-quarter GDP.
I just don’t buy that. There has been almost no significant tariff impact on the New Zealand economy yet.
Dairy, meat and kiwifruit exports are all booming with record prices.
And I don’t think that, for the average consumer, tariff policy is the all-pervasive issue that political and economic commentators see it as.
Donald Trump gets bigger headlines for weirder stuff every week.
Did you see him address the US Generals?! That was weird and worrying.
The problem is that New Zealanders have been hit in the pocket by rising food and energy prices at the same time as they are worried about losing their jobs (or have actually lost their jobs).
We’re being squeezed by both kinds of bad economy at once.
Economists call this stagflation.
Any extra dollars coming in because of rate cuts are being eaten by additional living costs, saved or used to pay down debt to help create a buffer against the risk of redundancy.
That’s created a negative feedback loop. Consumer caution hits business returns, which causes job losses, which hits consumer confidence … and so on.
Some people have laid the blame on the RBNZ for not cutting the cash rate fast enough. But let’s not forget that the Government changed the bank’s mandate to a sole focus on inflation.
That means it has to keep worrying about inflation (even though most of the rising prices relate to tradeable items outside its control), and it isn’t supposed to consider what’s happening to employment.
The ideological policy move has turned out to be quite a substantial own goal for the Government (perhaps second only to the money that was wasted on tax cuts for which they’ll get no credit at the polls next year).
Many economists think the RBNZ will be in catch-up mode on Wednesday and will deliver a 50-basis-point cut.
Others believe it will have to stay wary of inflation and move more slowly. But there is general agreement the OCR will go to at least 2.25% – and outside odds on a low of 2%.
I still believe monetary policy works. So I still retain a good deal of confidence that the economy will improve in the next few months. Or the next several months (I’m less keen to put a timeframe on it now).
The economic cycle never stops turning.
If it’s bad now, it will be good later; if it’s good now … watch out.
Economics can tell us where we are, and sometimes it can tell us where we are going, but no amount of economic knowledge is a sufficient condition for financial success.
That requires action.
So, after the beating we’ve taken over the past few years, I think we need a renewed sense of realism about what recovery looks like.
I watched the original Rocky movie again last week.
For those who haven’t seen it (or haven’t seen it in years), it is much grittier than the sequels that followed.
Rocky is a loser who gets an unlikely shot at the title. He’s the lovable underdog.
But after all the build-up, all the big dreams, after the epic training montage that ends with Rocky dancing on the steps of the Philadelphia Museum of Art, the movie takes a dark turn.
The night before the big fight, Rocky goes for a walk through the empty arena. He thinks about the challenge he’s facing and what’s about to happen.
He goes home to his partner, Adrian, and tells her he can’t win.
He recognises that the champion, Apollo Creed, is just a class above him.
Adrian’s response is profound. She doesn’t give him a pep talk or say ”You can do it, Rocky”.
She just looks at him and says, “So, what are we going to do?”
That’s the response we should have to this extended economic downturn, both on a personal level and as a government policy approach.
The recovery hasn’t happened in the manner we hoped it would, so now what – deliver another jargon-filled pep talk and keep our chins up?
Here’s a piece of corporate jargon that actually works quite well: fail fast.
If something doesn’t work, acknowledge it quickly and move on or, as a good corporate leader would say, pivot.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
