‘Recession likely’, or not

Different views on the likelihood of a recession.

Forbes: New Zealand, An Economic Success Story, Loses Its Way

On September 23, the people of New Zealand elected 37-year-old Jacinda Ardern as prime minister, the youngest prime minister in New Zealand’s history. Ardern has brought youthful energy to New Zealand politics, but her scary rhetoric during the campaign (like calling capitalism a “blatant failure”) has some people wondering if she will take the country back to the bad old days of the 70s and early 80s.

One of Ardern’s first acts as prime minister was to ban foreign ownership of residential real estate; New Zealand has, by anyone’s measure, one of the biggest housing bubbles in the world. Banning foreign ownership of property sets the country up for a possible real estate crash.

Ardern also opposes high levels of immigration, along with her coalition partner, Winston Peters. It is set to drop dramatically. Immigration, especially skilled immigration, has been a big contributor to economic growth over the years.

It seems likely that New Zealand will experience a recession during Ardern’s term. Nobody is predicting a return to the bad old days of the 70s, but New Zealand will probably lose its status as one of the most open, free economies in the world. It takes decades to weaken an economy, just like it takes decades to strengthen it. But investors will probably want to avoid New Zealand for the time being.

Jared Dillian is the author of All the Evil of This World, and the editor of the 10th Man newsletter for Mauldin Economics.

Liam Dann (NZH): What Recession? Local economists pick good growth

The verdicts are in and despite what Forbes contributor Jared Dillian says, there are no economists picking a recession for Jacinda Ardern’s Government.

Most of New Zealand and Australia’s major economics teams have now reassessed their economic forecasts to factor in the effect of the new Government.

The loose consensus – bearing in mind no two economists ever agree – seems to be that GDP growth is going to be less flash than previously expected next year.

But it’s not crashing through the floor either. Growth forecasts between 2.4 per cent and 3.2 per cent for 2018 still look pretty good by international standards.

Apart from a few random think pieces though – written by offshore commentators who can’t quite believe New Zealand changed Government with the accounts in such good shape – most of the economic and financial community still seems pretty relaxed about the new regime.

It’s very early days to see what the Government will do, and what the economy will do.

And as far as the economy is concerned, it is most at risk from overseas influences.