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Chapter 1: Why is the NZ economy struggling right now?
survive to 25, get the fix in 26. Remember those sayings when we came up with these little rhymes to tell ourselves to just hang in there and the economy would get better? We're still waiting, unfortunately. And it might not be over yet. Because look, we're not about doomerism here, but it's also not useful to stick our heads in the sand.
And when the government put out their budget recently, they also put out a bunch of economic forecasting that could directly impact your life. We're talking cost of living going up again, but in specific areas, changes to the job market, interest rates. And if we at least know how these things are coming at us, we can plan for them. Who better to help us than Christoph Schumacher.
Christoph is a professor of innovation and economics at Massey University and the director of the Knowledge Exchange Hub. But for all of that fancy introduction, you can actually talk like a real person, which is so important right now when we're in a fairly uncomfortable spot financially.
It feels a bit like every year we get told next year will be better and then it's not happening. It was rough. Last year was rough. Economic growth was very, very slow. But finally, sort of in the fourth quarter, December quarter, we picked up a little bit of growth. And just when we thought things are getting better, then the Middle East crisis happened.
And that, of course, has slowed growth down and has put pressure on inflation, which has gone up again.
So yeah, if you're doing it tough right now, it's not just vibes. And when you understand the forces behind what's going on, it makes it a little easier to create that all-important plan.
Oil prices affect everything. If you buy something at the supermarket, well, it would have come from a producer, be transported to a processing plant, be transported to a distribution center. By the time it hits the supermarket, a lot of petrol would have been used up and that costs more and that goes straight on to the prices.
When does all of this maybe finally get better?
The numbers suggest that economic growth is going to be very slow for the rest of the year.
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Chapter 2: How do global events like the Iran war affect local economies?
But there's also nothing in there that suggests we are ready for a disaster.
So welcome to Making Sense. It's the podcast people who want financial freedom without giving up their coffee. I'm Frances Cook, financial journalist and fellow financial freedom seeker who makes money simple for you. And today, why is everything so expensive? When is it actually going to get better?
This episode of Making Sense is supported by Odoo, the all-in-one solution to make running your business smoother and more affordable. Go to odoo.com, that's O-D-O-O dot com for more. I want to help as many people as possible reach financial freedom by taking control of their money. You can help me in that mission. Two really easy ways. First, hit subscribe wherever you like to listen.
YouTube, Spotify, Apple Podcasts, or any other podcast player. Then send this episode to a friend so we can all level up together. Then the show grows and I can keep giving you the money info that makes a difference for your life. Okay, back to it. Welcome, Christophe. Thank you so much for coming back in.
The last time we were chatting live in front of the audience about all things economy, and now we get to have a proper deep dive just you and I. So really appreciate you coming back on the podcast. I feel like I've been chatting to people a lot about how they feel with their money. The tone of my DMs and the tone of the emails have gone a bit dark.
feel like everyone's been talking about survived 25 and then the fix in 26 and now we've had a new budget from the government which came with all of this analysis that this year is not going to be great either what do you think what are you seeing when you look at some of the economic indicators and how things actually are out there what are some of the facts behind the feelings it feels a bit like every year we get told next year will be better and then it's not happening
It was rough. Last year was rough. Economic growth was very, very slow. But finally, sort of in the fourth quarter, December quarter, we picked up a little bit of growth. And just when we thought things are getting better, then the Middle East crisis happened. Oil is just such a crucial commodity that it affects everything. It puts prices up no matter where you look.
And that, of course, has slowed growth down and has put pressure on inflation, which has gone up again.
economists would now sort of use a bad word stagflation it's when the economy is slowing down but inflation is going up and unemployment is rising as well so that indicates to us this is not just a short-term issue but there is something more systemic happening and that's what causes i guess the uncertainty the discomfort of people in the gloom is as you have described
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Chapter 3: What does rising inflation mean for your mortgage and job?
We can't do anything. But it also means any changes in the OCR won't impact on that either. So there's nothing much government can do. The only way is to become... better at it, more efficient in our public services. And that has been an issue the government has flagged from day one. Reducing the number of public servants was certainly one of those promises they made in the campaign.
And there's something we need to look at because our domestic inflation hasn't been looking good. And there's something that would help people, if council rates wouldn't go up necessarily or even go down, if electricity prices or insurance prices, insurance costs have gone up hugely over the past few years, if those things we can't avoid would not increase as much.
That would help people as well with the cost of living crisis. So we must look at both sides of that coin, the tradable inflation, things like an oil shock where we have little power to change, but also our domestic inflation where we could do something.
Yeah, if you were given a magic wand, or even better, the ear of the prime minister and he was guaranteed to do just one thing, what would you like to see happen to tackle that cost of living for people? What do you think would move the lever the fastest?
providing people with some financial support. Now that would help instantly, right? But that's probably not a very sensible idea because that A, would require New Zealand to take on more debt and more debt needs to be serviced so there will be less money later on. And it's, well, it would put more pressure on inflation.
Provide handouts and people will start spending more and inflation will go up again. So that's not a fix. So what might be the quickest cure might not be the smartest thing to do. And I think the government has signaled this quite well in the budget. It's a very no frills, be disciplined now so we have more later kind of budget, which is not unusual in election years.
But it's a very sort of kind of grown up, very liberal kind of budget. And political liberalism doesn't mean anything goes. No, it simply means that the government puts responsibility back to the individual. You need to look after yourself and we won't intervene.
So that suggests that we are not providing handouts or the government will not be giving handouts, but it puts the responsibility back on each of us to make sure we make the savings we need.
to make to solve the cost of living crisis and need to just get better at the things we do at the heart of it is our low low productivity right we rank right at the bottom of the oecd in terms of of productivity we just need to start solving that problem i mean one of the first things david seymour did was get rid of the productivity commission because it hasn't done much because productivity had been falling even so we had a commission but
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Chapter 4: What is the NZ productivity problem and its impact?
Well, yeah, I was going to say they got rid of Callaghan Innovation as well, didn't they? Yeah. So Productivity Commission gone, Callaghan Innovation gone. Are we maybe going a little backwards on some of these ideas that you're suggesting?
I hope not, but we certainly don't do as much as we could.
Okay. And then the other thing, of course, is they are forecasting that unemployment towards the end of this year peaks at around the 5.5%, also not a great number. And I've heard a lot of, it's quite anecdotal, but it is sort of a lot of stories I've heard of people looking for work for months and just not being able to get anything.
A lot of competition out in the job market, quite hard to get new things. So do you think that's also linked into this, that if we're dealing with cost of living and then we've got this unemployment problem where people are increasingly finding it's a tough market out there, that we do need to look at other ways of making money?
I mean, the problem is New Zealand is so far away from a lot of other places, right? And that does have an impact on what we can do. Do we need to embrace more of a digital future, maybe?
What you hear anecdotally has economic reasons. If an economy is slowing down, it is always related to an increase in unemployment. And the uncertainty at the moment, I think that's what's driving businesses from just holding back on investments. Because we don't know where interest rates in the OCR are going. We don't know what inflation will do. So companies are cautious.
They're not necessarily expanding or investing, which simply means people find it harder to find jobs. Which sectors we need to get into? Well, digital information technology is certainly on the up. Aged care? It's something that is pretty resistant because we know the population is getting older. We know we need more health care.
So that's an area, certainly the whole medical space, medical equipment is certainly part where we can do well and we have done well in the part. But yes, the direction would probably be more high tech rather than primary healthcare.
and i think the challenge for new zealand is being so far away we need to attract people wanting to work here for the lifestyle because this is what new zealand has to offer and especially in that digital age people don't need to be in the center where everything happens you can work from other countries so the challenge will be to make new zealand an attractive enough place to be so that people come here and work from here and develop things rather than
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Chapter 5: How will AI change job markets in New Zealand?
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Quick interruption to say, if you're enjoying this episode, you'll love The Market Memo, my weekly newsletter where I teach you how to actually invest. No jargon, no spreadsheets, just real talk about shares and how to make your money work for you. What do you think would be the ideal in terms of if you could change any settings?
whether it's sort of the big picture thing of what should we change some settings to make things a bit better? And then are there any things that the average New Zealander could be aiming for in this type of economic environment to make their life a little bit better?
I think from a government perspective, we need to tackle that productivity issue. We need to tap into the Kiwi ingenuity, and we just need to find some form of strategy to make it not coincidental if somebody gets it, but have a bit more behind it. We need to figure out why our businesses sometimes struggle, and that has a lot to do with compliance, New Zealand's compliance cost.
are unbelievably high. We also haven't maybe put as much emphasis on the whole management idea in international rankings. The management qualities of museums don't rank as highly as they possibly could. And that has possibly something to do with the fact that New Zealanders are used to be a jack of all trades.
If you run your business, you do a bit of this, you do a bit of that, and you think, oh, I can do that as well. Not realizing that we do believe in specializations. There might be people who focus on a specific area and get really good at it, but we tend to not quite believe in that. We sort of, I can do that myself kind of thing. It's all there. We just need to be a bit smarter.
with it for people? Difficult. Maybe it requires some reflection. There's this famous thing in the idea of we can be prosperous without growth. We've gotten obsessed with the idea that GDP always needs to grow, right? If we don't grow, we go backwards. That's, hmm.
It's driving and that phrase, absolutely beautiful, that parts of our issue is that we buy things with money we don't have to impress people we don't care about. Yes. And that is part of things. Maybe... We can have some phones that are not the latest or drive a car that's a few years old.
Just reflecting on individuals that now is possibly the time to maybe be a bit more careful with your spending and realize what a beautiful country New Zealand is and enjoy what it offers rather than to feel under pressure to always keep up with the latest, most modern stuff.
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Chapter 6: When can we expect economic recovery in NZ?
We now expect things to get worse. That means companies stop expanding, stop hiring people. That in itself makes things worse because suddenly unemployment starts to go up. It creates more unrest and more uncertainty in business. So it's sort of a vicious circle. So once it gets into your head, then things start to get tricky.
And I think that understanding made the Reserve Bank decide not to change the OCR. And we might not see another hike in the next round either. Maybe the Reserve Bank waits to see what will happen with inflation. There's a great expectation and the market believes that there will be at least two rounds of sort of 0.25%. We're looking at the forward market. Will it materialize? Well, we'll see.
Well, I think that's such a good point as well, because you see things like they'll do these like mood of the boardroom surveys and things like that. And I often see, especially on social media, like a lot of criticism saying, well, this doesn't reflect reality. And this is just vibes. This is a bunch of CEOs being sad and I get it. And I think that's a fair criticism in some ways.
In other ways, I think that's missing the point in that businesses are run by people and people are influenced by emotions. And if they feel like there's not very many opportunities out there, whether or not that's true, that's still going to guide their actions. And when it's such an uncertain global environment, do you think there's anything more that could be happening here to say, okay,
We can't control all of these big global events. We can't control how trading partners might react. We can't control wars. We can't control what's happening all there. But is there anything we could be doing to increase that certainty here to then make it so that people feel like they can make some of those bigger business moves and increase that certainty for action here?
I think businesses have started to learn that risk assessment has to become now part of the regular things they need to do. We hit it very good. We all remember that rock solid economy for so long when inflation was almost non-existent. Companies simply didn't start thinking about what could happen and how to prepare for it, possibly to diversify, assess risk-haven strategies into place.
And then suddenly it happened and it caught everyone a little bit by surprise. So maybe companies need to account for changes in the OCR more in their business plans than they have done before. Maybe they need to do more global risk assessment and have strategies in place on what happens if it does come true.
Businesses just need to be more vigilant in accounting for those risks, planning for those risks, and then confident hopefully will come back that these events are better managed rather than come as a big surprise.
I think we see some huge changes in work in general. If we sort of pull it back from the business environment, but even the way people go to work, huge changes in the type of work that is rewarded and the type of work that is available. Do you see any more changes coming on that front for people that people can maybe prepare for?
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Chapter 7: What can individuals do to cope with the cost of living crisis?
Exactly the same things that you have said in many of your podcasts before too. Be a bit careful with your spending. See where you can cut a bit and make sure you have a buffer, some kind of reserves, because these down periods will come, so that you're not completely caught out, because this is what creates the real stress. And this is real for people.
If suddenly you're struggling to pay the bills, that's stress. That's unpleasant. So maybe be a bit more careful. Maybe put a little bit more aside than you had in the past so you can see, so you can ride out these waves. It's not doom and gloom in New Zealand. It's not.
Love it. Thank you so much, Christophe, for coming on. I always really appreciate your very considered thoughts. It's so good to talk to you. Look, if this episode was helpful to you, send it to a friend so we can all get prepared, level up our money together. Until next time, have a great day. This podcast can only give you general information about how things work in most situations.
It's not individual financial advice. If you're after that, a financial advisor is always the best bet.