Hard or soft landing? Business leaders assess NZ’s economy

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New Zealand business leaders are feeling more optimistic about the outlook, but most aren’t happy with where the economic cycle landed, despite being confident we have inflation beaten.

Asked if they were confident inflation was now past its peak, 89% of respondents to the Mood of the Boardroom
said yes.

Just 4% said no. The rest were unsure.
Read more from the Herald’s 2024 Mood of the Boardroom series
The outliers may well represent those in sectors struggling with high energy prices this winter. Topline inflation has declined steadily since it peaked at an annual rate of 7.3% in June 2022. It currently sits at 4% and is tipped to fall back into the Reserve Bank’s target band, below 3%, before the end of the year.
But there have been pockets of stubborn inflation. Respondents noted that power prices, insurance costs and council rates have all risen sharply this year, putting businesses under pressure.
Others noted that services (or non-tradable inflation) remained more persistent.
There was a message there for local government: “Councils need to get their spending under control and focus on basics and nice-to-haves.”
Even respondents who answered yes, were wary.
“In the short term yes but there remain major risks to upside,” one warned. “For this cycle anyway,” said another.
“[We’re] yet to see the entire impact of higher energy costs flow to the domestic economy,” another warned.
There was also a high level of economic uncertainty and tension globally that meant this was not over yet and election uncertainty in the US meant it was too soon to relax, one said.
The slow decrease in inflation across the past two years has been driven by Reserve Bank monetary policy which pushed up interest rates rapidly – to a peak at 5.5% by May 2023 – and then held them until August’s rate cut.
The Government has been quick to take some credit for the success, highlighting a change it made to the Reserve Bank’s mandate – removing its dual focus on unemployment and inflation.
Last year the Mood of the Boardroom survey asked: Could we have avoided some of the post-pandemic interest rate pain if we had retained a Reserve Bank mandate requiring a singular focus on inflation?
The decision to add employment to the Reserve Bank’s focus was made by Labour in 2018 – bringing it into line with dual mandate policies in the United States and Australia.
National campaigned on reversing that decision, which it argued has been one factor behind allowing inflation to rise so far outside the target band of 1-3%.
In 2023 a sizeable majority of respondents – 56.5% – said “yes”. Just 29.6% said “no” and the rest were “unsure”.
This year, with the sole focus of the mandate restored, the survey asked: Do you support the Government’s decision to remove the requirement that the Reserve Bank support maximum sustainable employment when making monetary policy decisions (the removal of the dual mandate) to concentrate on reducing inflation to 1-3% alone?
The results were even more emphatic: 75% said yes, just 10% said no, and the rest were unsure.
Increased support for the single mandate may be underpinned by the successful results in reducing inflation, but that hasn’t necessarily translated into confidence about the strength of the economy.
This year we asked business leaders to deliver a verdict on the RBNZ’s handling of the economy as it has emerged from the shadow of the pandemic.
Has the RBNZ managed to achieve a soft landing?
Most respondents (64%) said no.
“Quite the opposite,” said one business organisation chief. “The severe downturn is visibly obvious in the stats, business closures and the main streets of towns and cities where record numbers of shops are closed and empty. The economic therapy has killed many business patients.”
By the traditional definition of “hard and soft landing”, it is hard to argue with that view.
Technically when economists talk about hard and soft landings they are referring to whether policymakers have succeeded in bringing down inflation by lifting interest rates without putting the economy into recession.
The economy has dipped into recession twice since the Reserve Bank started lifting rates and (based on the bank’s own forecasts) is probably in a third recession right now.
Then there’s per-capita GDP, which has been going backwards for two years.
While the hope for a soft landing is still very much a live issue in the US, where the US Fed has just cut interest rates, things certainly meet the criteria for a hard landing here.
But, nothing in the pandemic era is straightforward. Though some specific business sectors have felt the slowdown more acutely than others, relative to the economic cycles of the past few decades, we haven’t seen the dramatic collapse of the economy.
The recessions so far have been shallow (albeit propped up by high net migration). Unemployment is still below 5%, a historically low level. And despite some grim headlines and high-profile business failures, the stats for credit arrears, mortgagee sales and business liquidations remain lower than they were during the GFC and immediate years after.
So despite a sizeable majority calling it a hard landing, perhaps it’s not such a surprise that the survey results around hard and soft landing aren’t quite a slam dunk.
Some 15% answered yes, we have achieved a soft landing and a further 20% were unsure.
“It depends whether you are landing or being landed on,” quipped senior director Rob Campbell.
“Too soon to tell,” said an executive with an import business. “It will depend on how high unemployment climbs and the economic implications of that over say 6%”
But broadly, there is no question that business is doing it tough this year and the bulk of comments reflect that pains and some genuine frustration with the central bank.
“The current environment does not feel like a soft landing. Many business owners would suggest they have hit rock bottom with a thud,” Mainfreight CEO Don Braid said.
“We are in the midst of a very hard landing. They were too slow and were hearing that from business two quarters ago,” a tourism sector CEO said.
“Overcooked at both ends,” an energy sector CEO said.
“The RBNZ has overdone it on both sides of the cycle,” one senior executive said. “[They were] too dovish during Covid and too hawkish on this end of things.”
“Any soft landing was “pure luck”, a manufacturing executive said. “The RBNZ seems to have very little idea of what is happening in the economy.”
On an upbeat note though, Peter Thompson, managing director at real estate group Barfoot & Thompson, noted that we may be finally on our way back to some better economic times.
“Still a bit of hurt for many businesses and individuals to go through though the light is now back in the tunnel and getting stronger,” he said.
“While we’ve seen positive signs that inflation is easing (and food prices were the first category to see zero or near zero increases) we’re not out of the woods yet,” Foodstuffs chief executive Chris Quin says.
“We are a small economy that is sensitive to changing global conditions. Our industry is impacted by many issues, including ongoing global supply chain disruptions, elevated energy costs, and the potential for overseas economic shocks that put pressure on costs (orange juice is the latest).”
“I think the return to the low interest rate environment pre-Covid will be a long haul, and we might not get to those levels again. Our best chance to strengthen the economy and lower interest rates is to ensure we’re match-fit with strong economic management, a clear vision for the future, an ambitious, achievable plan and an unwavering joint focus on making it happen.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.

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