00:00:00
Speaker 1: Now, I would have thought some very good news this morning comes out of some new research which finds the election campaign does not affect the economy. ASB have done this. They've analysed seven election cycles between 2005-2023. Mark Smith is Senior Economist, of course, at the ASB, and he's with us. Mark, morning to you.
00:00:16
Speaker 2: Good morning, Mike.
00:00:17
Speaker 1: So is this an urban myth?
00:00:19
Speaker 2: Yeah, we were actually really surprised. I think the wisdom is generally firms and households delay major decisions until after elections. When you look at the numbers, it's not actually the case at all.
00:00:31
Speaker 1: See, because can you go by the individual sets of cycles? I mean, the early years of MMP, for example, I remember them well. You had a lot of uncertainty. We didn't know what would happen. Maybe we don't spend. So that's not true?
00:00:44
Speaker 2: Well, we looked at seven elections, so obviously different periods. And also looking at consumer spending, investment, house sales, a whole bunch of things. But generally, the evidence does suggest that while there are some slight differences, for example, the GFC and COVID, there was obviously quite a lot of difference there. The general trend is that activity is actually stronger before elections rather than after. So rather than delaying decisions, firms and households just get on with it.
00:01:11
Speaker 1: Even though in some elections, those individual campaigns, you will have seen the outcome coming, 2020 being a very good example. So you knew what was going to happen in 2020, or would you argue because it was COVID that Things changed.
00:01:26
Speaker 2: I think you've got to sort of distinguish, you know, the election from the individual shocks hitting the economy. The GFC and COVID were two notable cases where our results were slightly different. But the thing is, you have to really put things into context. So at the moment, we've got the Middle East shock. So, you know, there's always elections to worry about. But there's also a whole lot of other things that firms and households have to grapple with. Yes.
00:01:50
Speaker 1: The housing market, see, I'm sort of surprised but not surprised. The housing market does surprise me almost to the point I might argue with you because it's such a large decision. At the moment, for example, you can't tell me what's going to happen in this next election. I can't tell you. We could agree that it's probably going to be tight, but wouldn't that affect my ability to decide to sell a house or not?
00:02:13
Speaker 2: Yeah, potentially, yes. Obviously, I'm not going to disagree with you here. This is what the numbers say. So, yes, in some instances, there will be a case for waiting. But in general, the numbers tend to suggest otherwise.
00:02:27
Speaker 1: Yeah. And can you explain when you said that people spend more before the election, can you explain why that is or that's just a fact they do?
00:02:35
Speaker 2: It's basically people have got busy lives. You know, life tends to get in the way of other decisions, you know, elections, for example. So there's a whole bunch of other stuff going on behind the economy apart from elections.
00:02:46
Speaker 1: I reckon there's an element of people like you and I, people in the media, all that sort of stuff, we become fascinated with the election, whereas most of the rest of the world just get on with life. And I think that's what you found, isn't it?
00:02:56
Speaker 2: Very much so. I think, you know, people have got lives to live. The election is part of it. Government policy does matter. But people get really caught up with elections, and they forget what really matters for firms and households.
00:03:07
Speaker 1: Right. Now, while I've got you, you've got some new inflation data. I don't like the look of this. What do you see by the end of the year?
00:03:14
Speaker 2: Yeah, pretty nasty. We're probably looking at 4.3% by the end of the year. Now, essentially, what's driving that is, again, cost shocks. Now, oil prices, it's refining, really, that's doing the damage as well. So higher oil prices, very, very high refining spreads. So what we're looking at is 4.3% by the end of the year. Now, the Reserve Bank had 3.9%. We've got a lower New Zealand dollar than what the Reserve Bank had expected, also higher oil prices. Now, this matters for New Zealand because a lot of our supply chain is based on diesel, so we have quite a widespread effect on the economy. In terms of the inflation outlook for next year, we don't see inflation falling below 3% until well into the second half of next year.
00:03:59
Speaker 1: But what about Trump's deal? Trump's solved it all. He's got the diesel coming in from Russia.
00:04:04
Speaker 2: Yes, well, we'll have to wait and see on that one. The thing will be, you know, we've got two years of more than 3% inflation. The Reserve Bank have got a job to do.
00:04:14
Speaker 1: Yeah, so they'll do it twice before Christmas?
00:04:16
Speaker 2: Yes, we expect 225 basis point hikes and would not rule out hikes for next year as well if the inflation remains as challenging as it does now.
00:04:25
Speaker 1: All right, Mark, we appreciate your expertise, even if you're delivering bad news. Mark Smith, who's the ASB senior economist, and there is a possibility, of course, that 91 hits $ 4, and the $ 4 part is psychological apart from anything else.
Speaker 1: Now, I would have thought some very good news this morning comes out of some new research which finds the election campaign does not affect the economy. ASB have done this. They've analysed seven election cycles between 2005-2023. Mark Smith is Senior Economist, of course, at the ASB, and he's with us. Mark, morning to you.
00:00:16
Speaker 2: Good morning, Mike.
00:00:17
Speaker 1: So is this an urban myth?
00:00:19
Speaker 2: Yeah, we were actually really surprised. I think the wisdom is generally firms and households delay major decisions until after elections. When you look at the numbers, it's not actually the case at all.
00:00:31
Speaker 1: See, because can you go by the individual sets of cycles? I mean, the early years of MMP, for example, I remember them well. You had a lot of uncertainty. We didn't know what would happen. Maybe we don't spend. So that's not true?
00:00:44
Speaker 2: Well, we looked at seven elections, so obviously different periods. And also looking at consumer spending, investment, house sales, a whole bunch of things. But generally, the evidence does suggest that while there are some slight differences, for example, the GFC and COVID, there was obviously quite a lot of difference there. The general trend is that activity is actually stronger before elections rather than after. So rather than delaying decisions, firms and households just get on with it.
00:01:11
Speaker 1: Even though in some elections, those individual campaigns, you will have seen the outcome coming, 2020 being a very good example. So you knew what was going to happen in 2020, or would you argue because it was COVID that Things changed.
00:01:26
Speaker 2: I think you've got to sort of distinguish, you know, the election from the individual shocks hitting the economy. The GFC and COVID were two notable cases where our results were slightly different. But the thing is, you have to really put things into context. So at the moment, we've got the Middle East shock. So, you know, there's always elections to worry about. But there's also a whole lot of other things that firms and households have to grapple with. Yes.
00:01:50
Speaker 1: The housing market, see, I'm sort of surprised but not surprised. The housing market does surprise me almost to the point I might argue with you because it's such a large decision. At the moment, for example, you can't tell me what's going to happen in this next election. I can't tell you. We could agree that it's probably going to be tight, but wouldn't that affect my ability to decide to sell a house or not?
00:02:13
Speaker 2: Yeah, potentially, yes. Obviously, I'm not going to disagree with you here. This is what the numbers say. So, yes, in some instances, there will be a case for waiting. But in general, the numbers tend to suggest otherwise.
00:02:27
Speaker 1: Yeah. And can you explain when you said that people spend more before the election, can you explain why that is or that's just a fact they do?
00:02:35
Speaker 2: It's basically people have got busy lives. You know, life tends to get in the way of other decisions, you know, elections, for example. So there's a whole bunch of other stuff going on behind the economy apart from elections.
00:02:46
Speaker 1: I reckon there's an element of people like you and I, people in the media, all that sort of stuff, we become fascinated with the election, whereas most of the rest of the world just get on with life. And I think that's what you found, isn't it?
00:02:56
Speaker 2: Very much so. I think, you know, people have got lives to live. The election is part of it. Government policy does matter. But people get really caught up with elections, and they forget what really matters for firms and households.
00:03:07
Speaker 1: Right. Now, while I've got you, you've got some new inflation data. I don't like the look of this. What do you see by the end of the year?
00:03:14
Speaker 2: Yeah, pretty nasty. We're probably looking at 4.3% by the end of the year. Now, essentially, what's driving that is, again, cost shocks. Now, oil prices, it's refining, really, that's doing the damage as well. So higher oil prices, very, very high refining spreads. So what we're looking at is 4.3% by the end of the year. Now, the Reserve Bank had 3.9%. We've got a lower New Zealand dollar than what the Reserve Bank had expected, also higher oil prices. Now, this matters for New Zealand because a lot of our supply chain is based on diesel, so we have quite a widespread effect on the economy. In terms of the inflation outlook for next year, we don't see inflation falling below 3% until well into the second half of next year.
00:03:59
Speaker 1: But what about Trump's deal? Trump's solved it all. He's got the diesel coming in from Russia.
00:04:04
Speaker 2: Yes, well, we'll have to wait and see on that one. The thing will be, you know, we've got two years of more than 3% inflation. The Reserve Bank have got a job to do.
00:04:14
Speaker 1: Yeah, so they'll do it twice before Christmas?
00:04:16
Speaker 2: Yes, we expect 225 basis point hikes and would not rule out hikes for next year as well if the inflation remains as challenging as it does now.
00:04:25
Speaker 1: All right, Mark, we appreciate your expertise, even if you're delivering bad news. Mark Smith, who's the ASB senior economist, and there is a possibility, of course, that 91 hits $ 4, and the $ 4 part is psychological apart from anything else.
