Economic Weekly: The evolution of the rolling maul

COVID’s rolling maul of unexpected economic challenges rumbles on.

The unusual nature of the post-COVID cycle has given rise to a series of issues no one could have foreseen. From an out-of-control housing boom, to fretting about how to restrain it, port logjams and broader supply chain difficulties…the latest issue to pop out of the maul is capacity constraints. Shortages, in other words. Not just of building materials and other (mostly imported) goods but, increasingly, labour.

These constraints are quickly becoming the number one issue for many of the firms we talk to, and they’re also becoming more obvious in the data. Take last week’s NZIER Quarterly Survey of Business Opinion (QSBO). Reported difficulties of finding skilled labour reached a 2-year high. Firms’ cost expectations over the coming quarter hit a high not seen since 2008. And the percentage of firms reporting sales/demand as the main factor limiting turnover fell to the lowest level since 1974.

Higher prices (inflation) and a squeeze on profitability are two of the more obvious macro implications. Both of these were on display in the QSBO. Labour shortages also support our growing sense that: a) unemployment will remain in the “4’s” this year rather than head back up through 5%, and b) wage inflation is set to accelerate from here. We’ve recently moved to explicitly factor higher wage inflation and lower unemployment into our published forecasts (see table). 

Offering higher wages to attract staff will only work up to a point though, if the requisite workers simply aren’t available. Such is the reality of the closed borders and the recruitment issues parts of the agricultural sector in particular are having. This speaks to another consequence of a capacity constrained economy – lower output than otherwise. Some industries – notably construction and horticulture – are constrained to the extent that activity will have to be scaled back. This adds to the growth challenges we see for the economy this year. Still, whispers of ‘stagflation’ are premature. Next year is still shaping up to be a strong one given strengthening global tailwinds.

Overall, we’re left more confident in our view that inflation is set to lift this year, starting with Wednesday’s Q1 print. The key question everyone is asking though is how long-lasting the uptick in inflation will be. Temporary as the world’s central banks expect? Or less so, as market pricing for earlier stimulus withdrawal would imply. Uncertainty abounds, but we expect inflation to hold at higher levels than RBNZ forecasts (chart above), supporting our view the RBNZ will begin the stimulus withdrawal process in the back half of next year.

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Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.