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Speaker 1: Kiyota.

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Speaker 2: I'm Chelsea Daniels and this is the Front Page, a

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Speaker 2: daily podcast presented by the New Zealand Herald. New Zealand's

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Speaker 2: economic outlook for twenty twenty five is expected to be

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Speaker 2: a recovery from the previous two years of weakness. With

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Speaker 2: inflation stagnant and the number of kiwis leaving the country

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Speaker 2: appearing to have peaked. Economists are predicting we will see

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Speaker 2: an uptick, yet it could be a long road to

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Speaker 2: get to the light of the end of the tunnel,

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Speaker 2: with the government's books at the end of December painting

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Speaker 2: a grim picture for the years ahead and the impacts

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Speaker 2: of job cuts likely to still be felt this year.

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Speaker 2: But the government has the economy on its hit list,

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Speaker 2: with Prime Minister Christopher Luxen focusing on it in his

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Speaker 2: State of the Nation's speech, saying that economic growth is

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Speaker 2: the key to better days ahead. So how long do

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Speaker 2: we have to wait for some good news and what

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Speaker 2: are the government's plans to get on top of things today?

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Speaker 2: On the Front Page ends at Herald Business Editor at

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Speaker 2: Large Liam dan Is with us to dig into the

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Speaker 2: economic outlook for twenty twenty five. Liam, Let's start with

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Speaker 2: a trip back to twenty twenty four. The half year

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Speaker 2: economic fiscal update at the end of last year revealed

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Speaker 2: some pretty bleak figures, didn't it.

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Speaker 1: Yeah.

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Speaker 3: What it basically showed was that the economy has been

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Speaker 3: in such bad shape that the government isn't taking enough

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Speaker 3: tax or as much tax as it's expected to take,

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Speaker 3: which means that they have an even bigger challenge in

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Speaker 3: front of them in terms of getting the country's books

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Speaker 3: back into surplus or back in good shape. That means

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Speaker 3: they have to make some really hard choices about either

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Speaker 3: cutting back on spending or you know, what they do

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Speaker 3: to promote growth, and sometimes those two things.

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Speaker 2: Sort of Is that why we're anticipating the most boring

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Speaker 2: budget ever come May?

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Speaker 3: I hope it isn't. I know, I'm going to have

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Speaker 3: to be I'm going to be one of the people

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Speaker 3: having to sort of make something exciting out of it

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Speaker 3: whatever they say. I guess there's not going to be

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Speaker 3: a lot of spending. But at the same time, I

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Speaker 3: don't think they want to do a big slash and burn,

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Speaker 3: so I guess you could say it might be quite

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Speaker 3: boring in the sense that hopefully it's not a sort

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Speaker 3: of a nineteen ninety one Mother of All budgets, So

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Speaker 3: they're not panicking that badly yet, so that would of

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Speaker 3: course be interesting. And they really are not going to

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Speaker 3: have a lot of money to splash around, so it's

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Speaker 3: not going to be that interesting in terms of, you know,

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Speaker 3: what's in it for people's pockets or for even many

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Speaker 3: of the industries looking for expansion and that sort of thing.

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Speaker 3: But for all that, they're going to have to think

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Speaker 3: very creatively, and I expect we'll see some policy stuff

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Speaker 3: in the next couple of weeks or so, because there's

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Speaker 3: got to be something coming from government to sort of

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Speaker 3: try and improve the pace at which the economy is improving.

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Speaker 3: I mean, I think we can say the economy is

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Speaker 3: going through the cyclical recovery, but it's looking a bit

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Speaker 3: lackluster at the moment and needs some sort of fuel

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Speaker 3: injection from the government.

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Speaker 2: I read Keaweibank's commentary around twenty twenty five. Their economists

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Speaker 2: are picking this year should be better than last, but

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Speaker 2: it'll be a year of two halves.

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Speaker 1: Would you agree with that?

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Speaker 3: Yeah, I mean, I guess it's how long it takes

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Speaker 3: to actually feel better. So we know the interest rates

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Speaker 3: have come down and inflations more or less back under control. Now,

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Speaker 3: that doesn't necessarily mean people are feeling a lot better suddenly,

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Speaker 3: because some people are still stuck on fixed rates for

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Speaker 3: a while and will still be paying higher rates until

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Speaker 3: they get off those inflations cumulative. You know, even though

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Speaker 3: that's back at two percent or whatever, it's still on

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Speaker 3: top of all the inflation we've had for the past

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Speaker 3: few years. So people still feel the cost of living

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Speaker 3: if it's a crisis, but they still feel that that acutely,

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Speaker 3: the high cost of living and until wages catch up.

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Speaker 3: And on top of that, we know that the employment stuff,

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Speaker 3: so unemployment and job losses tends to be at the

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Speaker 3: tail end of an economic cycle, so we're expecting to

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Speaker 3: see unemployment continue to rise through the first half of

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Speaker 3: the year, which which adds another layer of pressure. So

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Speaker 3: I guess the point that Kiwibank is making there is

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Speaker 3: that it's probably while you'll hear a lot of talk

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Speaker 3: about recovery and have done really since those first interest

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Speaker 3: rate cuts last year, a lot of people won't really

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Speaker 3: be feeling like the economy is that much better for

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Speaker 3: a while yet.

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Speaker 1: And I want New Zealand to be a country of aspiration,

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Speaker 1: of ambition, and of opportunity. But to meet that moment

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Speaker 1: and to make that vision of reality, we have to

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Speaker 1: go for growth. And it's just not up for negotiation anymore.

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Speaker 1: If we want a better standard of living, we have

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Speaker 1: to go out and we have to make it happen. Now,

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Speaker 1: I tell your change isn't easy, but it is so

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Speaker 1: worth it to once again allow us to take on

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Speaker 1: the best in the world and to win. But that

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Speaker 1: change is already underway. We've already got a year of

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Speaker 1: substantive structural change under our belts.

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Speaker 2: Now you mentioned inflation, and that's finally down to I

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Speaker 2: think two point two percent after three years of being

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Speaker 2: above three and it was that seven points something at

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Speaker 2: one point as well. But what is keeping it stagnated

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Speaker 2: at this point? Do you think?

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Speaker 3: Yeah? Well, inflation tends to get looked at in two parts,

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Speaker 3: and one is the cost of all the stuff that

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Speaker 3: we import into the economy, and some really basic stuff

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Speaker 3: we don't have a lot of control over it, so

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Speaker 3: like petrol prices or oil prices. And also a big

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Speaker 3: factor there is the value of the Kiwi dollar, which

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Speaker 3: has been heading down against the US dollar. So those

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Speaker 3: things we don't have much control over, so they all

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Speaker 3: came off. They all got very very high during COVID,

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Speaker 3: and that was what was sort of the trigger. One

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Speaker 3: of the triggers for the high inflation was suddenly the

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Speaker 3: spiking commodity prices and oil prices. The other one, of course,

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Speaker 3: was the stimulus that was unleashed in the extra money

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Speaker 3: that was printed. So there's that part, the international costs,

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Speaker 3: and then there's the domestic part, which really was stimulated

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Speaker 3: more by the money printing and the low interist rates.

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Speaker 3: What we're seeing now is last year we saw the

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Speaker 3: international commodity costs, oil prices and things come down a lot,

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Speaker 3: and that really helped get inflation back under control. Of course,

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Speaker 3: we had the interest rates go up and that slowed

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Speaker 3: the New Zealand economy, but that took a bit takes

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Speaker 3: a bit longer, so we're starting to see the New

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Speaker 3: Zealand domestic inflation come down quite a bit now. The

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Speaker 3: worry is that, you know what's happening in the rest

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Speaker 3: of the world and whether we start to see prices

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Speaker 3: for oil and imported goods rising again. So it remains

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Speaker 3: pretty crucial for the Reserve Bank to watch it closely.

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Speaker 3: And to make sure that it's not going to flare

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Speaker 3: up on us again. But I think you know the

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Speaker 3: latest starter we've seen that New Zealand component of the inflation,

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Speaker 3: and that's the domestic stuff that's like what you're paying

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Speaker 3: to get someone into I don't know who you're plumbing

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Speaker 3: or fix your deck, or what you're paying for a

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Speaker 3: haircut or all of the local costs. That's starting to

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Speaker 3: come down, not quickly, but at a fairly steady pace,

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Speaker 3: which is what you'd expect when the economy's slowing so much.

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Speaker 2: The largest contributor, you wrote in an article I read

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Speaker 2: this week to the annual inflation rate was rent. So

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Speaker 2: that's up four point two percent according to stats and

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Speaker 2: Z figures. How worrying is this. It feels like non

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Speaker 2: homeowners or already have a tough go of it at

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Speaker 2: the best of times.

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Speaker 3: Yeah, I hope that is trending down too. So it

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Speaker 3: gets complicated because the way we measure it. Rent was

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Speaker 3: the biggest contributor when we looked at the annual inflation rate,

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Speaker 3: and it has been one of the really high rising

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Speaker 3: sort of costs for people over the past few years.

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Speaker 3: And that's still spilled over into the twenty twenty four numbers,

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Speaker 3: but it is slowly easing a little bit. That rate

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Speaker 3: of growth is easing, and you'd expect that because the

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Speaker 3: property market is lowing and there's not the high rate

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Speaker 3: of net migration that we had seen previously. So hopefully

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Speaker 3: there's some good news there. When we just looked at

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Speaker 3: the last quarter of the year and the inflation there,

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Speaker 3: it was actually some more discretionary stuff that was pushing

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Speaker 3: that up, like international travel, for example, really went up

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Speaker 3: on that last quarter of twenty twenty four. So I

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Speaker 3: think while rents played a big part in the twenty

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Speaker 3: twenty four inflation number, that was across the whole year,

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Speaker 3: and I'm hopeful that we'll see that sort of mitigate

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Speaker 3: over this year.

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Speaker 2: How are banks responding to the current state of the economy.

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Speaker 2: What sort of mortgage cuts and the like have there

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Speaker 2: been recently?

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Speaker 3: Noticed them moving again a little bit last week or so,

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Speaker 3: so you know, there's an expectation that the Reserve Bank

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Speaker 3: will keep cutting the official cash rate for a while yet,

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Speaker 3: that we probably should get another fifty basis point cut.

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Speaker 3: We've had two of those, and you know, so that

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Speaker 3: they're bringing the official cash rate down quite quickly. Initially

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Speaker 3: we saw a pretty sizeable drop in mortgage rates, and

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Speaker 3: then it sort of stalled for a bit and people

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Speaker 3: started to get a bit grumpy about that, and the

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Speaker 3: banks said, oh, well, that's you know, there's there's international

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Speaker 3: costs to worry about as well, and there's also some

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Speaker 3: issues with the terms that people are taking in the pricing.

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Speaker 3: So there's it's taking a while for the rates to

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Speaker 3: come down at that sort of one year level where

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Speaker 3: a lot of people tend to pick their fixed rate to.

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Speaker 3: But there's been a little bit of movement on that.

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Speaker 3: So I think they are starting to expect that we're

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Speaker 3: going to get another fifty basis point cut and that

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Speaker 3: they see the pathway to the ocr coming down to

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Speaker 3: around three point twenty five something like that. I don't

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Speaker 3: think we'll see, you know, all those fifty basis points

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Speaker 3: passed through either. You know, it'll be a slow and

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Speaker 3: steady thing for mortgage rates through this year, but they

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Speaker 3: should have fair winds from the Reserve Bank. It will

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Speaker 3: again be a little bit of an issue, and I'm

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Speaker 3: sure we're going to get onto this, but around what

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Speaker 3: happens internationally and the huge variable around the United.

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Speaker 2: States are you going to say the T word.

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Speaker 3: Well, the man who's in charge of the United States now,

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Speaker 3: he tends to keep everyone guessing around what his policy

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Speaker 3: is going to be until it actually drop. And so

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Speaker 3: in the build up to Trump arriving, markets have been

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Speaker 3: pricing in this Trump effect and making assumptions about what's

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Speaker 3: going to happen. And they've been assuming that if he

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Speaker 3: does the tariff stuff and stimulates the economy with tax cuts,

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Speaker 3: that some of that could be inflationary. And if that's

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Speaker 3: inflationary again in the U, yes, then their interest rates

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Speaker 3: don't come down so fast, and that has implications for

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Speaker 3: the rest of the world. It means that their dollar

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Speaker 3: stays stronger and our dollar probably gets weaker, and we've

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Speaker 3: already seen that in the past couple of months, and

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Speaker 3: it means that probably keeps up the international borrowing costs

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Speaker 3: for our local banks. And so I guess we have

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Speaker 3: to wait and see on that because we don't know

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Speaker 3: what he's going to deliver, and it's really a game

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Speaker 3: of what the market expects versus what actually happens. And

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Speaker 3: if he doesn't deliver as much as he says he's

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Speaker 3: going to deliver, then the markets might be quietly happy,

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Speaker 3: and we might see a positive reaction. We might see

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Speaker 3: sheer markets go up and interest rates come down. But

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Speaker 3: if he really goes to town on the tariffs, boy,

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Speaker 3: then you know it's sort of all bets are off.

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Speaker 2: When it comes to tariffs. Though, So if we're thinking

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Speaker 2: New Zealand exports, he has floated every number under the

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Speaker 2: sun on the election trial, but anywhere between ten to fifteen, right,

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Speaker 2: the ones on China that everyone expects him to bring

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Speaker 2: through are going to be significantly higher. Would we see

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Speaker 2: any kickback from that? If China were to divert their

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Speaker 2: exporto and would they have to lower their prices? Would

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Speaker 2: we get a better deal so to speak?

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Speaker 3: It could do Yeah. I mean the same with any

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Speaker 3: of the European Union as well, if if they copp tariffs.

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Speaker 3: So there is a chance, you know, it would be

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Speaker 3: in specific goods that we need. But yeah, there's absolutely

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Speaker 3: a chance that we could see some weird knock on

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Speaker 3: effects like cheaper goods for countries that become targets who

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Speaker 3: don't have tariffs. So the Chinese, the Canadians, the Mexicans,

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Speaker 3: European Union might all start pushing you know, it might

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Speaker 3: make their goods cheaper around the rest of the world.

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Speaker 3: It's still not really clear, you know, it really isn't

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Speaker 3: clear what he's going to do. He talked about fifty

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Speaker 3: or sixty percent tariffs on China on the campaign trail,

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Speaker 3: and so somewhere the markets priced in some expectations. He's

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Speaker 3: now said, well, there's a ten percent tariff coming on

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Speaker 3: February one, probably, he always says probably, So we don't

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Speaker 3: know that for sure yet either, but you know, ten

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Speaker 3: percent might actually be a pleasant surprise to the markets,

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Speaker 3: even to the Chinese. And then from there, you know,

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Speaker 3: it's also possible that he puts tariffs on and then

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Speaker 3: starts working out a whole bunch of carve outs for

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Speaker 3: specific goods and things that the US needs, because it's

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Speaker 3: been pointed out by many people that the US is

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Speaker 3: reliant on a whole bunch of cheap stuff that comes

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Speaker 3: out of Mexico and China and even Canada, and then

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Speaker 3: if you put tariff's on it, it really makes huge

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Speaker 3: problems for even for US manufacturers because they're getting secondary

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Speaker 3: parts or the parts that they then use to build

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Speaker 3: stuff come from these places. So you know, it's very

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Speaker 3: difficult to see how he can do it in a

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Speaker 3: way that he's talked about on the campaign trail, and

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Speaker 3: from what I've seen so far in the first few

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Speaker 3: days of his term, he's said some stuff that sounds

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Speaker 3: like he's, you know, he's going to take it slowly,

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Speaker 3: and then he said some other stuff saying, oh, this

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Speaker 3: is happening, twenty five percent tariffs for Canada. Yeah, who knows.

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Speaker 2: Very bicking on tariffs on Mexico's given the action through

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Speaker 2: siding on the border.

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Speaker 4: Well, we're thinking in terms of twenty five percent on

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Speaker 4: Mexico and Canada because they're allowing vast numbers of people.

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Speaker 4: Canada is a very bad abuser of the vast numbers

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Speaker 4: of people to come in and fantanol to come in.

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Speaker 4: When I think bl've worry first, funny, I think I

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Speaker 4: think we'll do it about work for it.

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Speaker 2: Back to New Zealand, Treasury forecasts that real GDP will

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Speaker 2: grow zero point five percent in twenty twenty four to

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Speaker 2: twenty twenty five and three point three percent in twenty

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Speaker 2: twenty five twenty twenty six. What does this mean, Well, it.

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Speaker 3: Goes back to that point about the two halves of

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Speaker 3: the year, so we know recessionary really in twenty twenty

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Speaker 3: four and then twenty twenty four to twenty five. Well,

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Speaker 3: that means that it's still pretty marginal going into this year.

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Speaker 3: For the first part of this year the growth, we

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Speaker 3: might not be in recession anymore, but we're really just

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Speaker 3: ticking along with it with a marginal amount of growth.

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Speaker 3: That suggests that there'd be a fair old bump of

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Speaker 3: growth coming off the back of that in the years

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Speaker 3: ahead of that, because you know, there's there's some things

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Speaker 3: that are going well, are in our favor. So it's

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Speaker 3: not the thing that's going to transform our economy and

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Speaker 3: make all those people who want New Zealand to be

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Speaker 3: the tech capital of the South Pacific happy. But the

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Speaker 3: dairy industry is having a fantastic season, and that is

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Speaker 3: a very big variable in our economy. So the kind

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Speaker 3: of season they're having, with the really good prices for

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Speaker 3: dairy products around the world, and the bumper season they're

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Speaker 3: having in terms of production, I've seen numbers up to

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Speaker 3: four billion dollars extra into the economy. So that's like,

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Speaker 3: you know, adding a whole wine industry plus the film

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Speaker 3: industry all in one hit of extra money coming to

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Speaker 3: the country. Just because the dairy's going well, it's a

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Speaker 3: reminder of that our economy is still very, very reliant

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Speaker 3: on dairy and well.

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Speaker 2: It's almost like back to basics.

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Speaker 3: You wouldn't want to be having a bad season right now,

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Speaker 3: that's for sure, but you know, if we're getting lucky

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Speaker 3: on that, we'll take it.

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Speaker 2: The government's appointed Nikola Willis to be the Minister of

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Speaker 2: Economic Growth, with a big emphasis on driving investment in

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Speaker 2: this country. What do you make of this way of

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Speaker 2: approaching the economy.

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Speaker 3: Oh well, I mean I think it's a good idea.

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Speaker 3: This National has been talking about it to Luxe and

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Speaker 3: Nicola Willis has been talking about it since before the election.

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Speaker 3: I think we just need to see what they're planning

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Speaker 3: to do, and hopefully in the next few weeks I

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Speaker 3: think we might actually see some policy around foreign direct

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Speaker 3: investment and various you know, visa changes and all that

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Speaker 3: sort of stuff that I don't know. You know, the

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Speaker 3: governments can only encourage investment, but the idea is to

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Speaker 3: make New Zealand attractive place to invest. Now, what was

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Speaker 3: the reason that it went the other way? Well, I

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Speaker 3: guess we had a big boom under John Key of

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Speaker 3: money coming in and we had a housing boom, and

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Speaker 3: the previous labor led governments felt that, you know, it

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Speaker 3: was causing price asset price growth that was disadvantaging Kiwis

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Speaker 3: who already here. And so you know one of the

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Speaker 3: big ones obviously around that is the foreign buyer ban

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Speaker 3: on housing. So we might I think, you know, there's

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Speaker 3: been a lot of talk about possibly a change there

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Speaker 3: at the top level. They have to get this past

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Speaker 3: Winston Peters. They've got ACT as one coalition partner that

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Speaker 3: absolutely just would love to open New Zealand up to

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Speaker 3: foreign capital and see how much wealth that could generate.

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Speaker 3: Believes it would trickle down, I guess is the way

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Speaker 3: of talking about it. And then the other coalition partner

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Speaker 3: is Winston and New Zealand First, who utterly opposed to that.

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Speaker 3: You know, so National has got to find a pathway

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Speaker 3: through there. I think they sort of want to do it.

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Speaker 3: They wouldn't be as extreme as ACT. They would definitely

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Speaker 3: have some checks and balances around it. I don't think

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Speaker 3: they'd be talking about it unless they'd found a way

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Speaker 3: to keep mister Peters and the New Zealand First Party happy.

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Speaker 2: And finally, Liam, what would be your big prediction for

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Speaker 2: the economy this year.

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Speaker 3: Well, my big prediction, or my big hope is things

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Speaker 3: just progressively improve, And so I would say, all things

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Speaker 3: being equal, there is no reason why we shouldn't be

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Speaker 3: expecting to see unemployment peak and the end of the

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Speaker 3: sort of recessionary cycle. In twenty twenty five. We should

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Speaker 3: start to see some real growth again. And I hope

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Speaker 3: the government can, you know, continue with some policy changes

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Speaker 3: that sort of push that along, and that New Zealand

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Speaker 3: with those fear winds of a strong, strong dairy season

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Speaker 3: and maybe a bit of life in the housing market.

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Speaker 3: I know these are old faithfuls that kind of people

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Speaker 3: like me off and say we can't rely on forever,

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Speaker 3: but I hope they do their job. My prediction is

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Speaker 3: that those parts of the New Zealand economy do their

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Speaker 3: job and get us back into good enough shape that

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Speaker 3: we can really focus on some of the longer term

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Speaker 3: challenges and get some thinking going about all the productivity

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Speaker 3: stuff and all that. But I do think the fundamentals

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Speaker 3: of the New Zealand economy are still there to see

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Speaker 3: us coming right over the next six or eight months.

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Speaker 3: If I had a negative or a pessimistic prediction that

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Speaker 3: I might just throw in there an outside chance that

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Speaker 3: it all gets thrown up. It's that I am a

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Speaker 3: bit concerned about the US share market and cryptocurrencies because

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Speaker 3: they are already by whatever you might call an ordinary ordinary,

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Speaker 3: the metrics we used to use in the financial world.

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Speaker 3: They are overvalued already, and Donald Trump is going to

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Speaker 3: pump and pump those and I think we'll see a

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Speaker 3: strong share market run and a strong cryptocurrency run for

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Speaker 3: several months. I just hope that doesn't all go pop,

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Speaker 3: because the world does not need a massive sheer market

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Speaker 3: meltdown and financial crisis in twenty twenty five.

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Speaker 2: Thanks for joining us, Liam, Thank you. That's it for

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Speaker 2: this episode of The Front Page. You can read more

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Speaker 2: about today's stories and extensive news coverage at enzadherld dot

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Speaker 2: co dot nz. The Front Page is produced by Ethan

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Speaker 2: Sills and Richard Martin, who is also our sound engineer.

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Speaker 2: I'm Chelsea Daniels. Subscribe to The Front Page on iHeartRadio

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Speaker 2: or where can you get your podcasts, and tune in

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Speaker 2: on Monday for another look behind the headlines.