Predictions are notoriously difficult to get right. Photo / Getty Images
Predictions are notoriously difficult to get right. Photo / Getty Images
In this final column for the year I will be predicting exactly what happens in the economy next year.
But first, one small caveat: I’ll probably be wrong.
That’s a problem with specific predictions, unless you take the lazy route of the Marvel multiverse and assume that all possible realitieswill unfold somewhere at some point.
Apologies if what actually happens doesn’t match up with your reality, just remember it’s all fine because Spider-Man didn’t really die and mortgage rates are falling further in some other universe.
Let’s be specific. I reckon when I re-fix in October I’ll be able get 5.5 per cent for a 12 month period (it would be 7.39 per cent if I had to do that last week).
In June 2022 I was asked where interest rates would peak and picked 7 per cent. My forecast was based on the consensus of all the proper forecasts at the time, with a bit of added pessimism for good measure.
From a financial planning point of view it was helpful to be pessimistic about how high rates would go. It would also be wise, in my view to stay cautious about how far and fast they might fall.
The RBNZ has hawkishly forecast that it will hold the OCR all year. But with inflation falling fast in the US and the local economy slipping into recession faster than expected, the market disagrees.
In fact, as of Friday, market pricing is for wholesale rates is for 4.5 per cent by October, a full 1 per cent below the current OCR (5.5 per cent).
But markets often get a bit ahead of themselves and right now there is a celebratory vibe about the US inflation war being over.
I predict we’ll see the celebrations stall and a series of market flip-flops before we finally get to the bit where we are forking out less for our mortgage.
We also need to remember that the flip side to all this cheering about lower interest rates is that it reflects expectations for a tougher economy in 2024.
I feel confident in predicting we’ll expend plenty of energy worrying about recession in 2024.
I think we are already in one. Technicalities aside, conditions have been recessionary for most of 2023.
Unemployment is on the rise. Currently sitting at 3.9 per cent, the consensus of forecasts is that it will peak at 5.2 per cent.
If we pull that off we can call it a “soft-landing” from the pandemic economic cycle.
That’s below the average unemployment rate across the past 40 years. Unemployment peaked above 10 per cent in 1992 and tracked above 6 per for almost five years after the GFC.
Unfortunately, I think it will feel a bit tougher than the statistics suggest.
The rapid shift in labour market dynamic will be a shock to an economy where full employment had begun to feel like the norm.
On the plus side I don’t think a robot will take your job in 2024.
I do think AI will change the world radically in the next 20 years. But my hunch is that we’ve let ourselves get a little too excited about the practical applications of AI.
Prime Minister Chris Luxon with Minister of Finance Nicola Willis at Parliament. Photo / Marty Melville
We’ve seen that excitement push US tech stocks to new heights in 2023 as investors have tried to stay ahead of the curve. It is all eerily reminiscent of the late 1990s tech bubble.
That bubble blew up in 2000 when investors realised the internet wasn’t actually making them any money.
Of course, over the next decade, the internet did change the world.
I predict we’ll see a sell-off of tech stocks in 2024. Hopefully that will be offset by the rebound of more traditional stocks and our KiwiSaver accounts will stay in growth mode.
I also expect to see house prices rising again next year, but progress will be lumpy.
That’s a good word. It’s a bit like bumpy but with lighter gravy-based connotations.
I don’t think we’ll see a straight line recovery in 2024. I think the market will continue to improve as that peak in interest rates fades into the rear mirror.
History suggests that the Auckland market leads the pack, underpinned by population growth and speculation. The rest of the country follows. The Wellington market will lag as the bureaucratic scythe of the new regime sweeps through town.
Which brings us to politics. We’ve been left to wait for the finer details of the new Government’s fiscal plan. But I think we can see the broad brush strokes.
The combination of inflationary tax cuts, paid for with dis-inflationary cuts to spending, nets-out to very little macro-economic impact in 2024, according to local economists.
So more important, in my view, will be the kind of economic leadership Christopher Luxon and Nicola Willis can deliver in 2024.
I am optimistic that we’ll see a lot more of Luxon and Willis and a lot less of their coalition partners.
The off-brand, anti-woke stuff that Luxon had to concede to form a Government has been delivered. Now we need to get on with the bit where he applies his management skills to getting things done.
Luxon promised voters more efficiency, more energy, positivity and an increased openness to the world (i.e. some inflow of foreign capital).
Hopefully he can stay true to this formula and avoid getting bogged in the weeds of a culture war he doesn’t look comfortable fighting.
When we look out at the rest of the world in 2024 it is grim, divisive stuff. Sadly, I think it’s safe to predict more conflict and human misery on the global front.
Relatively speaking New Zealand remains a culturally cohesive and economically benign place to be.
Here’s to maintaining that in the new year. It might not be too bad.
