Is the New Zealand economy heading for a downturn?

Cam Bagrie blog

Posted 3 years ago by Pope & Co. Mortgages

Exclusive report for Pope & Co. Mortgages with Cameron Bagrie of Bagrie Economics

Former ANZ Chief economist Cameron Bagrie has shed some light on our economic questions this month. We are incredibly fortunate to be able to call on his expertise in understanding New Zealand and global financial markets to help guide our decision making—particularly when it comes to housing.

Below is a quick summary of his exclusive report with Pope & Co. You can also watch his video interview with Craig Pope here. Got questions for Cameron next month? Send them in!

We asked Cameron:
Is New Zealand heading for an economic downturn, and is the housing market set to follow?

The short answer is no—New Zealand is in reasonable shape. However, there are warning signs and risks to keep an eye on (particularly offshore and closer to home in Australia), and the Auckland property market is weakening. A pertinent danger is that we talk ourselves into a downturn. A downturn could occur, but it’s not the central scenario.

We’ve put together a quick table summary below showing the negatives and positives that the NZ economy has going for it, as laid out in Cameron’s full report on our website.




      • 50 percent of firms are pessimistic about the general economy according to the ANZ Business Outlook survey with key indicators heading towards zero—when this happens, growth tends to do the same. Those indicators were also weak in the year 2000 when the economy came close to stalling.
  • There is a clear political bias—businesses tend to be more upbeat under a blue hui as opposed to a red one. People are pointing the finger at the new Government’s economic direction. Some criticism is warranted, and some is not.
  • Prospects for investment are being curtailed by access to credit, costs and lack of a sizeable domestic savings pool. Costs are rising faster than asset prices, which disincentivises investment. Firms tend to hold off investing when uncertainty is high.
  • Businesses are being hit with a slew of rising costs. While issues need to be addressed in some sectors regarding what they are paid (i.e. education), there is a sense of catch-up about some of the wage demands and this will pressure firms’ profitability. Firms hire less and invest less when profitability comes under pressure. Some sectors are wondering if they are next after what has happened to the non-renewable sector.
  • Farmers accept things need to change but are scratching their heads where climate change and environmental policy is taking us.



  • There are growing concerns over the international economy and fears of a trade war. New Zealand is an export-dependent nation.
  • Sydney house prices are falling, and people are speculating the same could happen in Auckland.



  • It’s tough for the average household. Money disappears quickly. The household savings rate is negative; we spend more than we earn. New Zealand is not a cheap place to live.
  • Banks have become more conservative over lending. That’s not a bad thing but it’s still a change to manage and slows housing activity. Fuel taxes may be funding more roading investment, but it also takes money out of people’s pockets.



  • Where growth is going to come from is changing and people are confused.
  • The economy is 8 years into an expansion and people naturally look more nervously over their shoulders after such a period.



  • We’re at peak cow, more mindful of the negative effects from non-renewables (i.e. coal), and surging house prices might be good for creating paper wealth, but it’s created housing affordability problems and has contributed to income inequality. We’ve relied on migration to drive growth for the past few years but that’s put pressure on infrastructure and housing.



  • New Zealand has achieved a lot of growth simply by leveraging up the balance sheet. There is nothing wrong with borrowing but eventually you hit constraints. We appear to be at that point now with household debt at 168 per cent of income. Debt can still increase, but in line with incomes and not in advance.



  • The economy is going to see less growth via the wealth effect (the boost to spending from surging house and land prices), and little growth from the dairy and non-renewable sectors over the coming years. Small businesses (who typically use house equity like an ATM) are going to find it more difficult to access credit if house prices don’t move a lot. More growth will need to come from other parts of the economy. The other parts will take time to step up.


  • Business confidence averaged minus 18 between 2000 and 2007—but the economy still did well.
  • Opportunities will emerge as change takes place.



  • The equity market is performing well and reasonable earnings growth has just been reported. The government’s tax take is up; you don’t pay tax if you are not making money.



  • Interest rates are still low in New Zealand. There are growing expectations the next move in interest rates could be a cut. The market is pricing in 45 per cent chance of a cut.



  • If we borrow less and the housing market is well behaved, the Reserve Bank will relax loan-to-value ratio restrictions to encourage us to borrow more and buy houses. But not too much more for fear of inflaming the property market! It’s a balancing act.



  • Jobs are aplenty. Finding skilled staff is the biggest problem for firms. That’s a “good problem” not a bad one.
  • Wages are lifting.
  • We have no shortage of work across the construction sector, just a shortage of workers. Normally at the top of the cycle we build too many houses. This time we can’t build enough. We can see some sectors such as gaming industry, pip-fruit and kiwifruit starting to step up.
  • New Zealand dollar commodity prices are still strong, supporting rural incomes. The Government has the financial firepower to put more money into people’s pockets and invest more. Debt might go up, but we can handle it in the short term.



  • Tourism numbers are strong.



  • The New Zealand dollar has fallen, and this will help exporters.



  • New Zealand has one of the strongest fiscal positions in the western world. An orderly slowdown in the property market is a good thing as it lowers the risk of a bust.



  • The Wellington region is better placed than most. The Government is spending a lot of money and Wellington is a big recipient.



Overall, we can see there are positives and negatives about New Zealand’s delicately placed economy right now, but generally—we are doing okay.

What does this mean for you?

Business as usual. If you are looking at investing, buying, re-mortgaging, speak to your trusted mortgage broker who can delve deeper into your personal situation and help you to work out the best solution.

Was this helpful? Let us know—along with any questions you would like to ask Cameron when he's in next time.

Contact us

Hey, it seems you"re using a browser that is a little past its time and our website might not be able to perform as it should. If you’d like to have the best experience on our website, you can easily find out about updating your browser here

dismiss this message