Ex-ANZ chief economist on the global and local trends likely to affect Kiwi investors and advisors
Global interest rates are set to rise into 2022, with central banks across the world looking to combat inflation.
Leading economist Saul Eslake (pictured) spoke to New Zealand Advisor about the macro environment across the world, and how trends at the highest level of finance are likely to play back into our local economy in New Zealand.
“With the exception of a couple of places such as China, where growth is clearly slowing, and Turkey, where monetary policy is being controlled by lunatics, around the world there is only one direction in which interest rates can go, and that’s up,” said Eslake, who has been an economist for 40 years and has held roles at the Australian Treasury and as chief economist at ANZ.
“In particular, it now seems that the US Federal Reserve will finish tapering sooner than previously expected, around the end of March, and will start raising its cash rate.
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“It may be followed, soon after, by the European Central Bank, which appears to be signalling that it will stop buying bonds when it reaches the full extent of its so-called ‘envelope’ around March and will raise rates shortly thereafter.
“The Bank of England has already started raising rates and the Bank of Canada has said that it will start in the second quarter of 2022. With the exception of the Bank of Japan, all the major advanced economy central banks are either going to start raising rates or already have.
“When we look closer to home, the Reserve Bank of New Zealand has raised its cash rate twice and signalled that it intends to take the cash rate to somewhere the other side of neutral – probably more than 2.5% at some point, though that might not be in 2022.”
On a local level, Eslake pointed out that one of the key things to watch in 2022 would be the impact of last year’s tax legislation changes.
“In New Zealand, we’re still yet to see the impact of the tax changes that were announced in March last year and came into effect on the first of October,” he said.
“New Zealand has gone much further in scaling back tax preferences for leveraged property investors than has ever been proposed in Australia.
“It’s an interesting experiment, because while I would expect it to have a dampening effect on demand for housing in New Zealand, which is its explicit intention, it so far hasn’t had any of the catastrophic consequences that property interest in Australia allege will occur if there is any tinkering with property investor tax preferences here.
“What happens, if anything, to the New Zealand property market as a result of changes to the tax treatment of borrowing for property investment and the profits on the sale of investment properties in New Zealand will be very interesting to watch.”
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