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Big Pressure | New Zealand Investment News

Kirsten Boldarin: Head of Sales, Mint Asset Management

Tech recession lights may be flashing, but Kirsten Bordarin, head of distribution at Mint Asset Management, says New Zealand’s economy should weather the turmoil…

First-quarter GDP data released in June showed the New Zealand economy was in a technological recession. But technical recession or not, the economy looks to be doing better than expected given the double whammy of high inflation followed by high interest rates. Many expected a significant economic slowdown in 2022, but that has yet to happen.

And anecdotally, the slowdown doesn’t really seem to be happening. The restaurants are bustling and so are the shops. A Mint team was recently in Wellington to observe the queues for tables and the bustling Central Business District.

Many in crisis will wonder where this activity comes from.Food prices rise 12%[1] more than last year. For households with mortgages, the total share of disposable income that goes to debt service rises from a low of 9% to 22%.[2] by the end of this year.

But for now, a few items are helping to avoid rate pressure.

First, the labor market and wage growth remain strong.The unemployment rate is 3.4%[3] Average hourly earnings increased by 7.6%[4].only about 30%[5] of households have mortgages to pay off. For young people, rents and the cost of living are rising, but wages are helping to alleviate some of the pain from this inflation. For retirees with no mortgage and savings, term deposits offer far more attractive interest rates than they did a few years ago. While this was cold consolation for those facing mounting costs, it did at least help alleviate some of the pressure.

Tourism and net immigration also support the economy.Net immigration surpasses his 2020[6] peak and well above the historical average.

Mortgage delinquencies are on the rise in the squeezed middle class, but the pain is unevenly distributed. If fixed in mid-2021, interest costs would increase significantly.This equates to approximately 25%[7] Current inventory of mortgages.Average effective mortgage rate is expected to reach 6.1%[8] by the end of this year. However, this is still below his 2008 peak. And during that time, nominal household income increased.

So where will the pain of rising costs and fees be felt most? The agriculture sector is feeling it too. Dairy prices have fallen over the past six months and input costs have risen.

The commercial real estate sector is also an affected part of the market. Prices are falling and interest costs are rising, leaving less room to manage tenant stress. Fortunately, the banking sector has remained largely cautious in its lending operations, with businesses that have weathered the pandemic more resilient and tenant defaults not increasing, banks report.

After a bumpy touchdown at Wellington, a successful gentle landing proved difficult when faced with multiple crosswinds. We may be in a technological recession right now, but we don’t expect the economy to plummet significantly. We also expect inflationary pressures to recede, giving the Reserve Bank of New Zealand more leeway to avoid pushing further rate hikes here.

Disclaimer: Kirsten Boldarin is Head of Sales for Mint Asset Management Limited. The above article is for informational purposes only and does not constitute investment advice.

Mint Asset Management Issuer of the Mint Asset Management Fund.Download a copy of Click here for the Product Disclosure Statement.

[1] Stats NZ, Annual change in food price index, March 2023

[2] Reserve Bank of New Zealand, Financial Stability Report, May 2023

[3] Statistics New Zealand, quarterly unemployment rate as of March 2023

[4] Stats NZ, average hourly earnings for regular hours measured by QES for the year to March 2023

[5] Stats NZ, Mortgages and other property loans increase household debt, March 2022

[6] Reserve Bank of New Zealand data, M12 population and migration, estimated net migration

[7] Reserve Bank of New Zealand, Financial Stability Report, May 2023

[8] Reserve Bank of New Zealand, Financial Stability Report, May 2023

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