We ask Shamubeel.
Economists and commentators across the country have their calculators out and their fingers in the air trying to tell whether the recovery is really, truly, finally on.
One expert pundit divined a slow but steady recovery taking shape in the “engine room of the economy”; a bank economist declared that volatility notwithstanding, “The recovery is back on.”
Others, including former Auckland Business Chamber boss Simon Bridges reluctantly disagree. “Given what is happening offshore, they’re wrong,” said the former National leader, as he gazes grimly out at Donald Trump, the Strait of Hormuz, Ukraine and fuel prices back rising, at jumpy bond markets, AI perils and a menacing El Nino.
In a new episode of At Large with Toby Manhire, we asked Shamubeel Eaqub, chief economist at Simplicity, where he sits on this spectrum.
Last week’s measure of a 0.2% GDP increase in the quarter to June was good news, he said, insofar as it “wasn’t as bad as we had feared”. That, and a figure for the year of 2.6%, “looks healthy enough,” he said, noting that was boosted on strong results before Trump decided to launch an attack on Iran. “High oil prices pulled things back a bit, so it’s still a bit of a question mark in terms of what happens in the second half of the year.”
Much of that question mark is cut out of the world map, and the ways that the weather – both economic and literal – impact on Aotearoa. Rising fuel prices bring inflation, which in turn could prompt further rises in the OCR. “So the Reserve Bank is raising interest rates and globally bond prices are rising … Both of those things mean that it’s going to be more expensive for us to borrow money, whether we’re households, businesses, or the government,” said Eaqub.
“These are still very much headwinds. So I’d say the recovery from here is not plain sailing. There is a lot of underlying demand. There is still really good evidence that things are slowly knitting back together. But there are headwinds that you would not normally expect at this stage of the cycle.”
He added: “Generally, across the world, I think what we’re seeing is this incredible pressure on governments to pay for defence, to pay for climate change – not to raise tax taxes, but increase spending. So there is a real fear around the world that you know these governments around the world are not prepared for a world that looks riskier, different, and they’re still stuck on this path of borrow-and-spend.
“Borrowing in and of itself is not a problem. But if you’re borrowing money to essentially pay for the groceries, that’s a problem. If you’re borrowing money to build your infrastructure to buy your house, that’s fine. Right now, lots of governments around the world, in the US and in New Zealand, we’re borrowing money for our everyday expenses. So we’re putting groceries on Afterpay, and that’s why interest rates are going up.”
So where does that leave us – is the recovery under way?
“When I go around the country, people are just wanting to get started,” said Eaqub. “People have been waiting for a long time. A lot of things have been put on the side-burner. They want to do stuff. But at the same time, I hear the usual kind of refrain, you know, ‘I’m worried about interest rates. I’m worried about the cost of fuel. I’m worried about those other things. I’m worried about the weather.’ These things do matter.”
But, he added, “this recovery has been a long time coming. There is still a real kind of pent up demand for people to do things. So, I think, given the opportunity, this recovery will come. But it’s very much those external conditions that still matter for a very small, open economy that has a large agrarian base.”
On At Large, Eaqub also delivers his assessment on the metric that towers above the others when it comes to the question of an economic bounce-back: the recovery mojo-meter.
Elsewhere in the podcast, he discusses the proffered solutions from the rival parties for restructuring the supermarket duopoly, the prospects of an interest rate rise from the Reserve Bank a few days out from the election, and why the shifts in the US bond market sands matter to New Zealand.
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