The economist attended the bank's business banking breakfast
Kiwibank’s business banking breakfast, featuring RBNZ chief economist Paul Conway (pictured above) and attended by nearly 200 clients, delved into the evolving economy, structural changes post-COVID, and the balanced outlook on inflation and interest rates.
Economic evolution and inflation
During the Kiwibank-organised event, Conway addressed the current economic landscape.
“The main takeaway from Paul’s update was the balance of risks are better balanced,” said Kiwibank’s Jarrod Kerr, chief economist, Mary Jo Vergara, senior economist, and Sabrina Delgado, economist.
“The economy is tracking broadly as the RBNZ has forecast. We’ve made good progress, especially on the inflation front. But the RBNZ’s job is not over. Inflation is falling, but still high. And the labour market is loosening, but still tight.
Structural shifts and technological innovations
The discussion of the economy in the post-COVID world focused on the significant structural shifts in the workplace and the accelerated adoption of technology.
“The working from home phenomenon has reshaped workforces...and in many cases, improved work-life balance,” the Kiwibank economists said.
The impact on commercial property and retail dynamics was also highlighted, alongside the rapid integration of technology in banking and commerce, which according to the economists was a “good news story for economy-wide productivity.”
“The more we innovate, the faster our technology becomes, the more we get out of every dollar spent,” they said.
Business sentiment and rate cut anticipations
Kiwibank’s breakfast also offered insights into the business community's outlook, with many attendees expressing cautious optimism for rate cuts and economic recovery.
“Survive until ‘25” emerged as a common theme, capturing the anticipation for relief and growth as the RBNZ adjusts its monetary policy stance.
Challenges and opportunities in SME financing
Discussion points included the need for more accessible credit for SMEs and the impact of bank risk weightings. Kerr, Vergara, and Delgado noted the fluctuating appetite of major banks for business lending and the potential for more favourable conditions to stimulate economic activity.
Productivity, talent, and migration
Conway touched on the challenges of improving productivity and attracting talent, given New Zealand’s small size and geographical isolation. The discussion also covered the unprecedented net gain from migration in 2023 and its implications for the economy.
“As Conway pointed out, the demand impulse this time around is proving weaker than past booms,” the Kiwibank economists said. “Migrants are of a younger cohort and of a different occupation… They come at working age, and they’re keen to work… We’re importing more tradies, fewer professionals… The labour market is flooded with new, and desperately needed, talent. We’re seeing downward pressure on wages. That’s good news for businesses and inflation.”
RBNZ’s monetary policy shift: From hawkish to dovish
Following the RBNZ’s shift from a hawkish to a dovish stance between November and February, Conway attributed the change to more balanced economic risks and progress in combating inflation. This reassessment suggests potential for an earlier rate cut in November 2024, deviating from previous forecasts and highlighting the RBNZ's adaptability to changing economic conditions.
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