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March 2023, economic update

In brief
  • New Zealand’s Quarterly GDP is in decline. 
  • Property prices continue their 13 month decline. Food prices hit 30 year highs.
  • Banking failures overseas lead to bailout loans that already dwarf those made during the GFC. 

GDP and the current account deficit

This month data published on NZ’s quarterly GDP reported a decline in growth of -0.6% for the December quarter. 

NZ’s current account deficit is high, clocking in at 8.9% of GDP. This is the widest it has been since the measure began being recorded. It has caught the attention of ratings agency S&P. Director of sovereign ratings Anthony Walker said “[the current account deficit] is at an extremely high level at the moment,” and “much wider than we were expecting it to be” 

Doug Steel, from Bank of New Zealand, echoed concerns, saying “This is worth keeping a close eye on as we think this deficit will get even bigger this year before it starts to shrink.”

Prices rise and fall

NZ property prices are still in dropping, continuing 13 months of decline across New Zealand. Property is now on average selling 100k below asking prices. CoreLogic data indicates that the number of properties sold in the last 12 months was the lowest since 1983. CoreLogic is pointing to interest rate increases as the cause for the dramatic slump.

Cost of living continues to be in news headlines, and is swiftly being framed as an election issue by mainstream commentators. Food prices have hit a 30 year high prompting The NZ Herald to launch a food price tracker showing a typical trolley of groceries, and their corresponding changes since 2008. 

Overseas banks fail

Two major and two smaller overseas banks have collapsed recently. Three US banks and Credit Suisse. All depositors are expected to be paid in full, with actions to stabilize being taken by both governments and other financial institutions.

Some commentators are blaming the US FED for the collapse, pointing to the FED interest rate rising as the catalyst. 

During the 2008 banking crisis, the US FED lent out $111 billion in discounted loans to banks. It acted as the lender of last resort during the GFC, and is essentially doing so again. This week $152 billion in loans were made to failing banks. 

March 2023, economic update - Centrist
March 2023, economic update 2

The RBNZ was quick to jump to dampen any concerns that the collapses could spread to NZ.
“Our banks operate different business models that mean that they are not as exposed to the risks that have led to recent events. Our rigorous stress testing has shown that they are well-placed to deal with far more adverse situations than what we are currently experiencing. “ 

Finance minister Grant Robertson thinks “depositors should have confidence in the resilience of the financial system.” 

Fortunately NZ investment funds have been largely safe from financial losses, although Fisher Funds -NZ’s second largest Kiwi saver provider- has “completely exited” investments in US banking after suffering a $50mil loss from the collapse of Signature Bank. 

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