Brad Olsen says a recession is ‘somewhat inevitable’ but hopes it’s ‘short and sharp’

A leading economist says a recession is “somewhat inevitable” for the New Zealand economy. 

It comes as house prices continue to fall throughout May, with the trend towards weaker housing market conditions likely to continue, CoreLogic said.

The official cash rate (OCR) reached its highest level since 2016 after the Reserve Bank raised it to 2 percent, up 50 basis points, in the face of 30-year-high inflation. 

Infometrics principal economist Brad Olsen told AM on Wednesday even though unemployment is at record low levels, he thinks a recession is “somewhat inevitable”.

“A recession does seem somewhat inevitable for the New Zealand economy and the hope really has to be it’s a short, sharp recession and we don’t see that sort of economic scaring, a long term hit that we usually associate with recession,” he told AM Early host Bernadine Oliver-Kerby.

I don’t think we are appreciating the magnitude of economic damage coming our way.

We were looking at 3.9% OCR by 2024.

That’s been revised to 4.5% this time next year.

The full impact of the economic implosion from the war in Ukraine has not hit us yet. Putin’s submission hold won’t be fully felt until December and seeing as that war is now predicted to continue through until next year, if you think inflation is bad now, you ain’t seen nuthin yet.

Put the war alongside a zero covid policy in China that could be triggered any time a new outbreak occurs, you have global supply chains that are broken and simply can’t mend.

Even if Putin’s own take him out or he dies from an illness, those taking over will still be left with the existential weakening of Russia. He has set a path towards war and destabilising the global system of rules based governance that empowers the West so fruitfully. They will have no choice but to double down.

The use of a nuclear battlefield nuke to terrify NATO and the Ukraine into submission grows by the day.

In China, their poor vaccine knockoffs are not as strong as the Western versions and the authoritarianism used to force control even the affluent in the cities is causing enormous economic harm and social damage. Their zero tolerance of Covid means any time it pops up in China, they lock down. This at a time of global geopolitical posturing in the South Pacific and their support of Russia while they eye Taiwan.

The current lock downs causing vast bottlenecks at Chinese Ports and strangling off global supply chains hurts the West as much as it does China, but it also provides the Communist Party vast power over a domestic population they are increasingly becoming afraid of and that could easily justify an external war for nationalism.

To put it simply, the things making life so tough right now are far more likely to become vastly worse by December.

What is the Government’s response? David Clarke has threatened the Shopping Duopoly with a wet bus ticket and promised slaps on wrists.

Y-e-a-h.

The sea is still rushing away from the shore at this stage as the tsunami crests the horizon.

We face the economic turmoil of a global economy that has printed $25Trillion dollars since 2008 to prevent an international economic meltdown which has artificially created the lowest interest rates for 5000 years!

You have to go back to fucking Mesopotamia for interest rates this low!

I don’t have a PHD in monetary theory, but I’m not sure raising interest rates that gives all that debt gravity as a means to slow spending will counter inflation if it’s being driven by Supply side dynamics, not Demand side dynamics.

Halting the speed of money flow is counter productive if Kiwis don’t have any money to start with. Prices are skyrocketing because of international inflationary pressures exacerbated by a global financial market pumped full of printed money. If Supply side dynamics are driving the inflation, cutting back consumer spending will tilt the economy into a steep recession, which will quickly become a depression when prices continue to climb because of scarcity.

The domestic response to this economic pain? An explosion of crime, explosion of desperation, explosion of domestic violence, explosion of poverty and a very real threat of political terrorism in this country.

Look, maybe I’m wrong. Maybe there can be peace in Ukraine tomorrow, all the infrastructure damage replaced at record speed and China won’t see another Covid infection and all that printed money bounces back and the global economy steams ahead cheerfully.

Maybe.

B-U-T I think that’s highly unlikely.

We are facing geopolitical shockwave after geopolitical shockwave, these are unique times that risk enormous Black Swan events the ramifications of which are incredibly dangerous.

I do not believe that you are ready for this Jelly.

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