Speaker 1: Hilda.
Speaker 2: I'm Chelsea Daniels and This is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. The Reserve
Speaker 2: Bank has cut the official cash rate twenty five basis
Speaker 2: points to three point twenty five percent.
Speaker 1: That's the lowest it's been.
Speaker 2: Since August twenty twenty two, though there were discussions about
Speaker 2: holding it. Today's move is in line with most economists'
Speaker 2: expectations and is another positive sign of the growth of
Speaker 2: the economy, but there remains global uncertainty over US President
Speaker 2: Donald Trump's policies and what impact his tariffs.
Speaker 1: And trade wars could have.
Speaker 2: Today on the Front Page, Infometrics chief forecaster Gareth Kinnan
Speaker 2: is with us to dissect the decision to cut again
Speaker 2: and what impact global politics could have on our economy. Gareth,
Speaker 2: the OCEA has been cut again.
Speaker 1: Is that good news?
Speaker 3: It is good news for borrowers and mortgage holders expecting
Speaker 3: to see the floating rates come down, and signals from
Speaker 3: the Reserve Bank also suggesting that, if anything, there's still
Speaker 3: more downside risks to interest rates than they previously allowed for,
Speaker 3: so that could well see a bit more prescire coming
Speaker 3: through in terms of fixed rates.
Speaker 4: Going down as well.
Speaker 2: Market pricing, and I guess nearly all the economists had
Speaker 2: a twenty five basis point cut locked in, and that's
Speaker 2: exactly what happened. What does it mean for our economy?
Speaker 3: I'm the Reserve Bank at the moment is effectively pushing
Speaker 3: against a whole lot of uncertainty that we're getting coming
Speaker 3: in from overseas with the international trade war and nobody
Speaker 3: quite knowing how that's going to pan out. The Reserve
Speaker 3: Bank themselves expressing a lot of uncertainty about what's going forward,
Speaker 3: so they're I guess trying to provide as much support
Speaker 3: for the economy.
Speaker 4: As they can.
Speaker 3: You know, New Zealand was in the early state pages
Speaker 3: of an economic recovery after the sort of very tough
Speaker 3: conditions through twenty twenty three and twenty twenty four. This
Speaker 3: international trade will was come at a really bad time
Speaker 3: in terms of sort of kneecapping that recovery.
Speaker 4: So the Bank is trying to help there, but.
Speaker 3: They have also recognized that position and downgraded their economic
Speaker 3: forecasts as well, so it is kind of just just
Speaker 3: trying to help the economy keep going, but you know,
Speaker 3: not adding too much fuel to that fire.
Speaker 2: A and Z has forecast that had eventually dropped down
Speaker 2: to two point five percent. Others are slightly more optimistic,
Speaker 2: suggesting an endpoint at two point seventy five. This is
Speaker 2: the sixth cut in a row. How low will it
Speaker 2: go before it holds?
Speaker 1: Do you think, Yeah.
Speaker 3: We've got another interest rate cut factored in at the
Speaker 3: next review in July is taking it down to three percent.
Speaker 3: At this stage, we're still unsure about whether there will
Speaker 3: be further cuts after that. We haven't formally built any
Speaker 3: into our forecast, but recognizing that what is going on
Speaker 3: internationally does create some downside risks.
Speaker 4: The problem for the Reserve.
Speaker 3: Bank at the moment is that they are also looking
Speaker 3: though just a little bit of inflationary pressure coming through
Speaker 3: the system. Inflation sort of picked up in the latest quarter.
Speaker 3: Inflation expectations have lifted as well. Reserve bankers said that
Speaker 3: that will be temporary, but they also do have in
Speaker 3: their minds what happened three or four years ago where
Speaker 3: they said inflation will be temporary then and it turned
Speaker 3: out to be far from the case. So they're trying
Speaker 3: to go down something of a medal path there. I
Speaker 3: guess it's a case of playing things very much by
Speaker 3: ear from here as to how things unfold.
Speaker 2: Well, I understand as well that this wasn't a unanimous decision.
Speaker 2: There was some consideration of holding it at three point
Speaker 2: five percent, The Reserve Bank said in considering the merits
Speaker 2: of holding the OSA unchanged at three point five percent
Speaker 2: for this meeting. Some members noted that this would allow
Speaker 2: the committee to better assess whether increased economic policy uncertainty
Speaker 2: was having a noticeable impact on household and firm behavior.
Speaker 2: Now unpack that for us, Why would there have been
Speaker 2: this sentiment.
Speaker 3: Yeah, Effectively, they're saying there's the international trade will happening,
Speaker 3: the tariffs which may be on, they may be off.
Speaker 4: As a result of that.
Speaker 3: Uncertainty, there is an expectation that businesses potentially hold off
Speaker 3: from investment decisions, they hold off from hiring decisions, so
Speaker 3: the labor market might be slower to improve households as
Speaker 3: a result. Maybe they hold back in terms of some
Speaker 3: of the spending growth that might have been expected as well.
Speaker 3: So all of those factors, it may well be that
Speaker 3: the Reserve Bank does need to provide more support, does
Speaker 3: need to cut interest rates further, But it's not a
Speaker 3: clear case at the moment, and I think the Bank
Speaker 3: will be looking at confidence surveys in particular over the
Speaker 3: next month or two to get a better gauge of
Speaker 3: just how seriously some of this uncertainty is weighing on
Speaker 3: people's decision making.
Speaker 5: Internationally, developments look likely to lower global growth in the
Speaker 5: horizon ahead of US. Both high tariffs and elevated policy
Speaker 5: uncertainty is likely to weigh on domestic economic activity and
Speaker 5: inflation pressures. However, there's considerable uncertainty around these judgments.
Speaker 2: I saw the Reserve Bank also said both tariffs and
Speaker 2: increased policy uncertainty overseas are expected to moderate New Zealand's
Speaker 2: economic recovery and reduce medium term pressures. And you've noted
Speaker 2: that as well. To translate that, are we just waiting
Speaker 2: to see what Trump will do next?
Speaker 3: Yeah, there is a bit of that, and you know
Speaker 3: it can change from day to day very much in
Speaker 3: terms of the news that comes out around that. But
Speaker 3: in terms of that waiting, I mean, look, the Reserve
Speaker 3: Bank has revised down their expectations for economic growth this year.
Speaker 3: They do think there'll be a bit more of a
Speaker 3: catch up when you get through into mid twenty six
Speaker 3: and out into twenty twenty seven. But for now, the
Speaker 3: expectation is that growth is just slower to recover as
Speaker 3: a result of, like you say, waiting and seeing what.
Speaker 4: Might come of the trade war, what Trump will.
Speaker 3: Decide and how China is our largest trading partner, will
Speaker 3: be affected.
Speaker 2: Where are the markets at now that initial flurry of
Speaker 2: the Trump terrists has that passed?
Speaker 4: Yeah?
Speaker 3: Look, I mean markets if you go back to early April,
Speaker 3: they felt substantially they had been falling anyway, but there
Speaker 3: was a significant drop of course following the announcement on
Speaker 3: Liberation Day. As we've seen the tariffs paused for ninety
Speaker 3: days across most countries, we have seen markets rebound. But then,
Speaker 3: of course we had last week the sort of announcement
Speaker 3: or rhetoric around.
Speaker 4: Europe potentially being slapped with fifty percent.
Speaker 3: Terroriffs by the US, which again was reversed out pretty quickly,
Speaker 3: but it's just enough to sort of keep markets unsettled, and.
Speaker 4: So there's still a fairly high degree of.
Speaker 3: Volatility and uncertainty on financial markets at the moment.
Speaker 4: Yeah, will be tariffs.
Speaker 6: What they've done is other nations happened stealing the movies,
Speaker 6: the movie making capabilities from the United States, and I
Speaker 6: said to a couple of people, what do you think.
Speaker 6: I've done some very strong research jobs last week, and
Speaker 6: we're making very few movies now Hollywood have been its
Speaker 6: slow Now you have an incompetent, grossly in competent governor
Speaker 6: that allowed that to happen. So I'm not kids claiming
Speaker 6: other nations, but other nations, a lot of them have
Speaker 6: stolen our movie in this and I'm saying, if they're
Speaker 6: not willing to make a movie inside the United States,
Speaker 6: and we should have a tariff when movies should come in.
Speaker 2: It does feel like we don't quite know where Trump
Speaker 2: will go with the economy. You mentioned the steep tariffs
Speaker 2: with the EU, then that's now been paused. The other
Speaker 2: week he was posting about film tariffs that haven't really
Speaker 2: gone anywhere. He's demanding now that Apple and Samsung move
Speaker 2: phone production to the US. Are there any thoughts on
Speaker 2: what his plans are or where this is all going.
Speaker 2: He seems pretty committed to the idea of tariffs, even
Speaker 2: though that didn't go down too well with the markets.
Speaker 3: Well, they're one of the beautiful things I think is
Speaker 3: he Phraises is one of the most beautiful words.
Speaker 4: This is the tariff.
Speaker 3: So look, I genuinely don't know what his endgame is.
Speaker 3: I don't know if he even knows what his endgame
Speaker 3: is either. I mean, certainly the volatility on financial markets
Speaker 3: has caused of a lot of unsettlement. But what I
Speaker 3: struggle with is take the China one as an example,
Speaker 3: where you know, he's trumpeted the fact that we've got
Speaker 3: the tariffs back down to thirty and ten percent across
Speaker 3: the two countries. Well, that's where we were six weeks
Speaker 3: ago before all of this kind of started, and you
Speaker 3: back there, haven't achieved anything, and we don't quite know
Speaker 3: what the end game is. So you know, there's certainly
Speaker 3: a sense that he wants to, you know, bring employment
Speaker 3: and production back to America, but the reality is that
Speaker 3: can't happen overnight, and there's a hell of a lot
Speaker 3: of pain and difficulty to be worked through before you
Speaker 3: even get close to getting to that point where the
Speaker 3: American economy can maybe be a bit more self sustaining
Speaker 3: in some of the areas. And let's be real, it's
Speaker 3: not going to be self sustaining in all the areas
Speaker 3: he's been targeting, but some of them even the sort
Speaker 3: of most optimistic ones. It is going to take time
Speaker 3: for that sort of factory production to move back closer
Speaker 3: to home.
Speaker 2: And I can imagine if Apple phones and Samsung phones
Speaker 2: and devices are manufactured in the US, I mean, we
Speaker 2: could be paying eight grand for an iPhone in future,
Speaker 2: right well.
Speaker 3: And I think that was the sort of maybe it's
Speaker 3: a bit of a shock to them, but you know,
Speaker 3: the sort of analysis done that the price was going
Speaker 3: to be two or three times what it was for
Speaker 3: coming out of China because America just didn't have the
Speaker 3: sort of the systems in place and the technology and
Speaker 3: all that sort of stuff to produce at that rate.
Speaker 3: And that's before you even start to think about some
Speaker 3: of the retaliatory measures that China had taken in terms
Speaker 3: of limiting the sort of exports of rare elements and
Speaker 3: earth materials to the US to try and sort of
Speaker 3: undermine the goal that's there. So, yeah, there's real potential
Speaker 3: inflationary impacts or sort of shocks to the system in
Speaker 3: terms of some of those products potentially becoming a lot
Speaker 3: more expensive if you go down the tariff route.
Speaker 2: It'd be pretty difficult to talk about the economy without
Speaker 2: mentioning the G word, and that's growth. Prime Minister Christopher
Speaker 2: Luckxon has been pretty quick to praise National's strong economic
Speaker 2: management for the OCEI Cup. But how much can actually
Speaker 2: be attributable to the government. How much is just dumb
Speaker 2: luck and how much is just controlled well, I mean.
Speaker 3: The economy was already struggling, of course, already slowing down
Speaker 3: before National came in. We've seen you know, big interest
Speaker 3: rate rises through twenty twenty two and into twenty twenty
Speaker 3: three from the Reserve Bank just to try and get
Speaker 3: that sort of excess heat and excess.
Speaker 4: Demand out of the economy.
Speaker 3: Anyway, I guess in terms of government policy, where potentially
Speaker 3: the government can take some credit as they have obviously
Speaker 3: taken a tight rain, a tight approach around fiscal spending
Speaker 3: and continuing to sort of target savings through there. Now,
Speaker 3: that's not great from an economic growth perspective in the
Speaker 3: near term, because you know, the economy typically when it's
Speaker 3: slowing down, you'd look to the government to provide a
Speaker 3: bit of support to cushion the downturn that you're having.
Speaker 3: It's not appropriate for government to be doing that at
Speaker 3: the moment given the extent of growth and government spending
Speaker 3: that we've had previously. But it does mean that if
Speaker 3: the government is cutting back, it does mean the Reserve
Speaker 3: Bank does have a bit more scope to maybe bring
Speaker 3: those interest rates down because across the economy, as the
Speaker 3: sort of excess demand, the excess heat through the economy
Speaker 3: is being wound back a bit more quickly than if
Speaker 3: the government was still throwing money out the door.
Speaker 2: With Gay abandon right, So the government does deserve a
Speaker 2: part on the.
Speaker 4: Back look to some degree.
Speaker 3: Look, there's a consistency at the moment, I think between
Speaker 3: fiscal policy and monetary policy, or there has been in
Speaker 3: terms of trying to get that economy back, as I say,
Speaker 3: at a more sort of sustainable growth rate than what
Speaker 3: we've had previously.
Speaker 4: And I think, look if interest if.
Speaker 3: The government was spending more than it is at the moment,
Speaker 3: then there is potential that interest rates wouldn't be able
Speaker 3: to be as cut by as much as they have been.
Speaker 7: This budget supports the economic recovery while also taking a
Speaker 7: longer term view with initiatives to boost investment, growth and savings.
Speaker 7: Kiwis have been battling through an extended period of high inflation,
Speaker 7: high interest rates, and low growth times are still tough
Speaker 7: for many. The good news is that strong economic and
Speaker 7: physical management is ensuring our recovery is underway, supported by
Speaker 7: lower interest rates and a strong export performance.
Speaker 2: What about the impact of the budget that has emphasized
Speaker 2: a lot of individual responsibility towards things like savings and
Speaker 2: looking after your kids when they grow up. What impact
Speaker 2: do you forecast that having on the budget in the
Speaker 2: short to medium term.
Speaker 3: Yeah, I mean, I think in terms of the way
Speaker 3: the economy is a performing going forward. Probably the sort
Speaker 3: of headline grabber was around in VS Boost and it's
Speaker 3: been interesting to see the forecast of Treasury particular around that,
Speaker 3: where they've said, okay, our baseline forecasts for investment by
Speaker 3: businesses going forward will lower because of global conditions and
Speaker 3: the uncertainty out there. But when we bring in the
Speaker 3: investment boost policy, we do think it just will encourage
Speaker 3: a bit more investment. And while that doesn't necessarily impact
Speaker 3: growth a great deal immediately, it does facilitate more growth
Speaker 3: a bit further down the track. So for me, that's
Speaker 3: probably one of the key parts of getting a bit
Speaker 3: more momentum into the economy. Not necessarily this year, but
Speaker 3: if we look forward to twenty twenty six and twenty
Speaker 3: seven just helps to provide a bit more growth coming through.
Speaker 1: We're always looking overseas.
Speaker 2: First it was COVID and now we're just on the
Speaker 2: edge of our seats looking to see what Trump does
Speaker 2: and how that affects our economy. Because we live in
Speaker 2: such a globally connected world. Is there any escaping those
Speaker 2: overseas pressures?
Speaker 4: Do?
Speaker 1: We just have to live with them?
Speaker 4: Pretty much, we do.
Speaker 3: And that's not just the fact that the the whole
Speaker 3: global economy is interconnection, but from a New Zealand's perspective,
Speaker 3: you know, we are so reliant on exports, is a
Speaker 3: key part of our economy and driving our growth story,
Speaker 3: and certainly at the moment when we look at the
Speaker 3: expected recovery in New Zealand over the next twelve to
Speaker 3: eighteen months, two key contributors to that right. One is
Speaker 3: lower interest rates putting more money back into household pockets.
Speaker 3: And you know, eventually over time as they roll off
Speaker 3: higher fixed rate, as the labor market turns and consumer
Speaker 3: confidence improves, more of that money will be spent and
Speaker 3: flow through the economy. But the probably even bigger aspect
Speaker 3: of the recovery we're looking at at the moment is
Speaker 3: just around the sort of high export prices for the
Speaker 3: likes of dairy products, meat, horticulture. Those are all really
Speaker 3: good levels and we're expecting that money to flow through
Speaker 3: into provincial economies over the next.
Speaker 4: Year or so and stimulate more growth. It's quite different
Speaker 4: to the sort of recovery that New Zealand has had.
Speaker 3: From an economic perspective, probably over the last thirty years,
Speaker 3: where a lot of the time our economic fortunes have
Speaker 3: been driven by changes in migration and population growth and
Speaker 3: that moving around.
Speaker 4: Quite a lot. This time around, it it's more like
Speaker 4: an early nineteen nineties or even prior to that recovery,
Speaker 4: where it is those export prices, that export revenue coming in,
Speaker 4: there's more.
Speaker 3: Money for farmers, they get out and spend it, and
Speaker 3: eventually it flows through from provincial areas and flows through
Speaker 3: into the urban centers as well. So yeah, from that perspective,
Speaker 3: g the global economy is a real sort of lynchpin
Speaker 3: of where New Zealand is going at the moment.
Speaker 2: Gareth, is there a fear that the positive trajectory of
Speaker 2: our economy has hit a kind of juncture because there
Speaker 2: was acceleration that we saw at the end of twenty
Speaker 2: twenty four, even the beginning of this year. But now
Speaker 2: we've got all this global unpredictability.
Speaker 1: What do you think will happen next?
Speaker 3: Yeah, there is a sentence I get from getting out
Speaker 3: there and talking to businesses that late twenty four early
Speaker 3: twenty twenty five, the data we were getting through, the
Speaker 3: messages we were getting from talking to people were they
Speaker 3: weren't massively positive, but there was certainly an improvement on
Speaker 3: the sort of wholesale pessimism that we'd had through much
Speaker 3: twenty twenty four. And I get a sense just the
Speaker 3: last three or four weeks again talking to people, that
Speaker 3: that positivity has just evaporated away a bit. That's not
Speaker 3: necessarily to disappeared across all parts of the economy, but
Speaker 3: certainly some of the people I talked to are going, Yeah,
Speaker 3: it's just it seems to just.
Speaker 4: That momentum have petered out a little bit.
Speaker 3: And I think that's partly a function of those international
Speaker 3: events that we've talked about and the tariffs and the
Speaker 3: uncertainty associated with that, but it is also partly a
Speaker 3: function that you know, there's still aspects within the new
Speaker 3: Zealand economy, where take consumer confidence for example, it's improved,
Speaker 3: but it's still not that great. People still don't feel
Speaker 3: fantastic about their own financial situation. So it's almost a
Speaker 3: sense of some of that turnaround or emerging turnaround we
Speaker 3: saw in late twenty twenty four was maybe a little
Speaker 3: bit premature and some of the fundamentals behind it still
Speaker 3: need to improve further. Get the labor market improving a bit,
Speaker 3: get employment growth picking up, and then you'll have a
Speaker 3: bit more solid base to start accelerating economic growth from
Speaker 3: notwithstanding what may be happening internationally.
Speaker 2: Of course, thanks for joining us, Gareth, Thank you very much,
Speaker 2: my pleasure. That's it for this episode of The Front Page.
Speaker 2: You can read more about today's stories and extensive news
Speaker 2: coverage at enzidherld dot co dot nz.
Speaker 1: The Front Page is produced by Ethan.
Speaker 2: Sills and Richard Martin, who is also our sound engineer.
Speaker 1: I'm Chelsea Daniels.
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