That lost 1994 Pak'nSave receipt, China's rebound, and are banks ripping us off?
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Can a China rebound lift NZ out of recession?
Okay, so the Reserve Bank (RBNZ) has engineered this economic downturn and we’re all holding on for a rebound in 2025, when rates start falling. As I wrote on Sunday, “survive ‘til ′25″ has become the business catch-cry this year.
But there is more to this recession than just interest rates . There are other headwinds for New Zealand’s economy , not least the slowdown in China .
The Chinese economy was in the spotlight on Monday with the China Business Summit 2024 , hosted by NZ INC. and the Auckland Business Chamber.
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Hong Kong-based ANZ China economist Raymond Yeung presented a detailed breakdown of the outlook for China. He warned that GDP growth is slowing and will continue to slow but also suggested it was no longer the most important metric for the Chinese economy.
We should probably put the slowdown into context. China’s official GDP growth rate was 5.2 per cent last year. As a US$18 trillion ($29.5t) economy, that means it still added almost US$1t – or about four times New Zealand’s entire GDP.
“Slower GDP is not a disaster,” Yeung said. “It is not really critical any more.”
Yeung said New Zealand exporters should stop worrying so much about the macro-economic story. It is just too big to be relevant for most Kiwi exporters.
Instead, he advised those doing business in China to focus on their sector conditions and the structural changes that will impact growth for them.
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We can see this coming through in the differing returns for New Zealand exports. Dairy and meat prices have rebounded in the past few months but are still well off record highs.
Timber prices have slumped, however. ANZ’s Commodity Index for May says: “The forestry index plummeted 8.5 per cent in April, with log prices now at their lowest level since October 2016. China is our main market for logs and demand from that market is extremely weak at present as construction activity remains subdued.”
The property sector remains the biggest problem for the Chinese economy, Yeung said.
As well as having a direct impact on demand for building products, the shakey sector has undermined consumer confidence.
As the Financial Times has reported: “Beijing announced some of its strongest moves yet to revive its debt-stricken property sector, encouraging local governments to buy real estate and relaxing mortgage rules as it seeks to boost a recovery in the world’s second-largest economy... China’s central bank, the People’s Bank of China, unveiled a 300 billion Rmb [$68b] re-lending fund to support such purchases from local state-owned enterprises, saying it would drive up to Rmb500b of bank lending. Earlier the Bank of China lowered the minimum downpayment for first-time homebuyers from 20 per cent to 15 per cent, and said it would scrap minimum interest rates on mortgages.”
These were significant measures, Yeung said. They would ensure that China doesn’t experience a property crisis along the lines of the US sub-prime crisis in 2006 and 2007.
But, he warned, they won’t solve the issues of oversupply in the property market which he estimates will take at least three and half years to unwind.
That’s ominous because it suggests that we can’t rely on Chinese consumers to give New Zealand’s economy the boost it so badly needs. Dairy consumption has stayed relatively strong but the subdued number of Chinese tourists we’ve been seeing post-Covid isn’t likely to pick up dramatically in the short term.
Chinese consumers are opting to travel domestically for the big holidays and the domestic spending around the last New Year’s celebration set a new record.
Meanwhile, the manufacturing and export part of the Chinese economy is kicking back into gear. That will keep GDP growing but it doesn’t really help with high unemployment and consumer confidence because it is so automated – with heavy use of robotics and AI (artificial intelligence).
What was needed was a rebound in the services sector to boost employment and consumer confidence, Yeung said. That would help drive consumption of Kiwi exports but was also tied to the fortunes of the property market, so a significant lift was three and a half to five years away, he said.
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