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An Economic Health Check - 11 September 2015

Today's presentation by leading Economist Shamubeel Equab to the members of The Admirals' Breakfast Club provided a timely update on the New Zealand economy and the Auckland housing bubble, following yesterday's decision by the Reserve Bank to lower the official cash rate yet again.

Shamubeel highlighted the two-speed economy with Auckland and Christchurch being the key drivers and reaping the benefit of both commercial and immigration growth in Auckland, and the significant building and construction boom that Christchurch has and continues to enjoy.  While indicating that the New Zealand economy has peeked, Shamubeel added his confidence to that of the Governor of the Reserve Bank in seeing a steady 2% growth rate into the foreseeable future.

With the dairy payout forecast to reach its lowest levels in decades, the pressure on a segment of the dairy farming community with lower levels of equity will be significant as will the downstream effect on the economy of affected rural communities.

Turning to the Auckland housing crisis, Shamubeel highlighted some key factors from his book entitled ‘Generation Rent’, with 57% of all adult Aucklanders currently renting. This figure reduces to 52% in New Zealand as a whole.  These figures highlight the need for not only increased density in Auckland housing but also social policy that creates a framework for secure long term rental, given the financial hurdles that future generations will face in achieving home ownership.

Shamubeel also reassured members that while the Reserve Bank can only do so much via monetary policy to support the economy, the current strength of the Government's balance sheet provides fiscal options for stimulating the economy should it dip below the predicted 2% annual growth rate.

Finally, Shamubeel was asked for a prediction on the cross rate between the New Zealand and US Dollar.  He picked 52 cents with the caveat that neither he nor any other economist has ever got such predictions right!

In all, Shamubeel confirmed his status as the author's favourite Economist due to his eloquence and unambiguous interpretation of all the facts affecting the New Zealand economy.

John Dawson, Founder, The Admirals' Breakfast Club
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