Coface New Zealand commercial director David Meys (pictured above) has slammed the removal of the objective to support maximum sustainable employment from the monetary policy remit of the Reserve Bank of New Zealand (RBNZ), suggesting that the move will worsen existing economic challenges in the country.
Meys, whose camp downgraded New Zealand in 2023, told Insurance Business: “While 2024 will see rebounding commodity prices and increasing tourism and migrant student numbers, the economic challenges faced by New Zealand are exacerbated by the policy decisions of the new conservative coalition government.
“The government aims to remove the Reserve Bank’s mandate to keep unemployment low, which was established in 2018 by the previous Labour-led coalition. A dovish stance from the RBNZ appears unlikely, meaning that there will be no accommodative monetary policy in case of a downturn. With monetary policy focussing solely on inflation, and amid record net migration, there is a looming risk of rising unemployment.
“Such an outcome would further affect households’ disposable incomes, but would leave room for a drop in the OCR (official cash rate) if this led to inflation falling quicker. This, combined with construction cost inflation, continued migration, and expected rent increases could see house prices rise in 2024.”
The Reserve Bank of New Zealand (Economic Objective) Amendment Bill was passed by Parliament last month, effectively changing the monetary policy committee’s remit to not include the employment objective.
“After the borders were closed for two years, New Zealand’s COVID hangover continues, with record net migration weighing in against a challenging economic landscape characterised by high costs of borrowing, still high inflation, and a new government adding uncertainty regarding future policies,” Meys declared.
Meanwhile, Coface economist Nouri Chatillon (pictured immediately above) commented: “The new government’s mini-budget policy statement in December 2023 outlined a return to fiscal surplus in the 2024/25 fiscal year. This indicates an anticipated contractionary fiscal policy, likely placing less support on households, signalling continued tight retail conditions and slow growth for the year ahead.”
Amid the abovementioned conditions, Meys warned against widespread insolvencies in New Zealand and urged companies to review trade credit insurance with their broker as a tool to underwrite credit risk uncertainty.
“Given the ‘new normal’ of increased volatility, monitoring the economic environment and how your buyers are adapting accordingly becomes crucial for businesses as all this plays out in 2024,” he said.
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