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Speaker 1: Now am Z reckons that we're headed for lower interest

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Speaker 1: rates than we possibly previously thought. They reckon the official

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Speaker 1: cash rate will bottom out at two point five percent.

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Speaker 1: That's down from the three percent low they'd previously expected,

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Speaker 1: and just for context, it's currently setting at three and

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Speaker 1: a half percent. Now. Sharon Zolner is A and z's

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Speaker 1: chief economists and with us. Now, hey, Sharon, good evening.

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Speaker 1: Why are you changing your forecast? Is this because of

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Speaker 1: Trump's tariffs or is it because of our own sluggish recovery?

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Speaker 1: Or is it a bit of both, a bit of both.

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Speaker 2: Yeah, So the economy is recovering, and what's encouraging is

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Speaker 2: that it's really broad based. And indeed, you know, why

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Speaker 2: wouldn't it recover because we're coming out of a recession

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Speaker 2: that was deliberately caused by higher interest rates, and rates

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Speaker 2: have come down a long way. So that's the good news.

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Speaker 2: But you know, just a few data points lately have

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Speaker 2: been a bit on the soft side. The housing market's

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Speaker 2: going there, we're fast, The services index was pretty low.

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Speaker 2: The quarterly Survey of Business Opinion suggests there's some downside

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Speaker 2: risks to the near term GDP and that sort of thing,

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Speaker 2: and then you've got the headwinds from offshore. Now, it's

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Speaker 2: too soon to make any concrete judgments on what might

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Speaker 2: happen to our commodity prices or anything like that, but

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Speaker 2: it does seem pretty likely that some pretty full on

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Speaker 2: uncertainty is going to persist for quite a long time,

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Speaker 2: and that in itself is actually quite a headwind for

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Speaker 2: the likes of investment and employment if firms just hit pause.

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Speaker 2: So we think there was a bank or just needs

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Speaker 2: to give the economy a bit more of a push

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Speaker 2: in the back to make sure it keeps moving forward.

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Speaker 1: So what's going on with our recovery? Why is it

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Speaker 1: so sluggish?

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Speaker 2: Well, I think we fell into a pretty deep hole.

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Speaker 2: Maybe be broken ankle. You know the new GDP data,

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Speaker 2: Well it's not that new anymore, but the revisions to

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Speaker 2: the GDP certainly show that it was pretty rough. Economy

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Speaker 2: found more than one percent in each of the second

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Speaker 2: and third quarters last year. So I think, you know,

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Speaker 2: you do get some damage done from that sort of thing.

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Speaker 2: So it just I think it just takes a while

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Speaker 2: for firms to believe really that things are going to

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Speaker 2: get better in that it is worth taking a bit

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Speaker 2: of a punt on that new employee or that new

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Speaker 2: machine or whatever it might be, and consumer, Yeah, the

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Speaker 2: cost of living crisis is still real for many. Inflation

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Speaker 2: has come down a long way, but prices heaven't. So

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Speaker 2: I think maybe to some extent, consumers are waiting for

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Speaker 2: prices to fall back to where they should be, But

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Speaker 2: actually lower inflation just means price is still going up,

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Speaker 2: just not as quickly. So I think that perception will persist,

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Speaker 2: perhaps even longer than the fact in terms of everything

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Speaker 2: being unaffordable.

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Speaker 1: Sharon, tell me what's your gut feel on the impact

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Speaker 1: of Trump's tariffs on the global economy. Are we talking

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Speaker 1: about freak out nineteen thirties depression stuff or are we

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Speaker 1: talking about who everything just slows down and we go

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Speaker 1: backwards a little bit.

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Speaker 2: Well, I'm sure we could find any lots of people

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Speaker 2: bunding at different points on that spectrum. Obviously the nineteen

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Speaker 2: thirties is the extreme, but we have seen a lot

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Speaker 2: of volatility in markets. But what's actually really caused a

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Speaker 2: bit of a freak out was the unusual behavior of

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Speaker 2: the US bond market. So typically when equity s crash,

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Speaker 2: people are compensated for the bond part of their portfolio.

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Speaker 2: That wasn't the case only for a couple of days,

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Speaker 2: but that was just a little straw in the wind

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Speaker 2: that has made to people jittery. So it's going to

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Speaker 2: take quite a lot for everyone to just just just

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Speaker 2: accept again that the US is a SI.

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Speaker 1: So are you saying kind of are you saying what

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Speaker 1: we should expect is we have a bit of a slowdown,

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Speaker 1: but there is the chance that there is the outside

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Speaker 1: chance that we do head into like worst case scenario

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Speaker 1: nineteen thirties depression stuff.

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Speaker 2: Again, No, no, no, you're putting words in my mouth.

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Speaker 2: I'm saying there is a chance that the markets are

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Speaker 2: jitary and so I think that is constraining policy options

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Speaker 2: at the moment. I think some lessons have been learned

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Speaker 2: in the last week or two about you know, move

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Speaker 2: fast and break things can have quite serious consequences, so

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Speaker 2: I think they will tread more cautiously. But you'd be

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Speaker 2: a brave person to be definitive about what an earth

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Speaker 2: will happen next. But you know, for in New Zealand's case,

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Speaker 2: the dairy prices went up overnight, so it's really not

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Speaker 2: obvious that that New Zealand is going to take a

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Speaker 2: clobbering from this at all, but that uncertainty thing that

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Speaker 2: looks unavoidable.

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Speaker 1: Yeah, Hey, Sharon, as always, thank you so much, Really

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Speaker 1: appreciate your expertise at Sharon Zolner, a and z's chief economist.

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