A VIEWPOINT BY TONY RICHARDSON
In the last few months the world has seen substantial turmoil in financial markets from the “damp squib” of the Greece default to the wiping off of nearly USD4 Trillion off the Chinese Stock Market. Oil prices have fallen substantially placing many producing countries’ economies at risk.
New Zealand has not been immune with the Fonterra dairy payout falling to $4.60 and the NZD/USD rate falling from 87 cents in July 2014 to 63 cents now. At the same time, some horticultural, beef and sheep export prices remain buoyant.
Key interest rates in US, Europe and Japan remain incredibly low and in some countries, such as Switzerland, are negative. The US interest rate increase expected this month has been deferred again until December. New Zealand rates are historically low but are still high compared with most of the rest of the world. Reserve Bank comments and economist predictions are for further NZ OCR rate cuts, to perhaps as low as 2.0%.
All this goes to prove that nothing in the sophisticated world we live in is certain.
Risk of Recession?
Some economists are talking of the risk of recession in New Zealand (that is two consecutive quarters of negative growth) but most consider that unlikely unless there is a major external shock of some kind.
What is clear is that growth in the next two years will be less than earlier predictions, although some sectors will do well while others stagnate or go backwards.
Caution is the Key!
Every business and household needs to proceed with caution:–
- Before borrowing, carefully:-
b) consider the risks as well as the rewards,
c) allow for significant interest rate increases beyond two years in your planning, and
d) ensure your income does not come from one main source (i.e. what happens if it stops?).
- Prepare a Business or Household Financial Plan.
- Prepare Business or Household Budgets and monitor at least monthly.
- Keep careful control over costs. Eliminate any not needed and review those that are to get value for money.
- Reduce debt as quickly as possible while interest rates are low.
- Consider paying mortgage break fees to negotiate better mortgage rate terms.
We can help or arrange advice for you on all of these.
Consider exporting now that the New Zealand dollar makes exports more competitive.
- sourcing products / components locally instead of offshore, or
- manufacturing offshore.
Get a good investment advisor to advise on suitable investment incorporating diversification and allowing for risk.
Review your insurance cover to ensure relevant risks are covered at affordable cost.