Many other central banks across the globe are now underway with their tightening cycle too and making all the right noises. ANZ Research fully expects them to tame inflation in time. The question is, how much tightening will it take and how much economic pain will it require?
“Kiwis need to continue to look beyond GDP for a steer on economic momentum. And there are plenty of indicators suggesting underlying momentum is slipping.”
Indeed, on the activity side, it very much feels like one-way traffic. War, COVID-19 in China hitting dairy prices, a further global pivot towards tighter monetary settings, still-accelerating inflation, biting capacity constraints (including within many global labour markets), falling house prices and weak consumer and business confidence all suggest downside risks to the activity outlook.
Some economic indicators are looking rather downbeat right now but COVID-volatility is making it hard to separate the noise from the signal.
Near term, the gross domestic product (GDP) data will be noisy. Lockdown impacts in Q3 (which saw the economy contract 3.6 per cent quarter-on-quarter) partially unwound over Q4 (a 3.0 per cent rebound) and should continue unwinding through the Omicron-ravaged Q1. However, it’s possible Omicron pushes some of this bounce into Q2. But provided New Zealand manages to avoid lockdowns in 2022, GDP data should settle down over the second half of the year (Q3 GDP is released December 2022).
That means Kiwis need to continue to look beyond GDP for a steer on economic momentum. And there are plenty of indicators suggesting underlying momentum is slipping.
Take ANZ’s Consumer Confidence survey and the question within it of whether it’s a good time to buy a major household item. This indicator tends to provide a very good steer on momentum in retail activity which in turn tends to provide a very good steer on overall domestic demand. Right now it’s very soft – softer than during the 2008/09 recession which is not a time retailers remember fondly.