That’s the total value of the Government Infrastructure Pipeline, which Shane Jones revealed last week.
It comprises 174 projects spanning new schools, road maintenance, defence, hospitals, and more. The report should clear things up for construction firms, many of which depend on the state as their main client.
The announcement came as a double-whammy less than 24 hours after Reserve Bank Governor Adrian Orr decided to drop the Official Cash Rate down to 1.5%.
$6.1 billion in spending and an interest rate cut in the same week?
That should signal big growth ahead for New Zealand’s economy. Both of those measures — fiscal and monetary — are expansionary…meaning they’re done in order to jump-start the economy.
Then by default, it also means that the Orr, Jones and friends seem to think that the economy needs jump-starting.
Maybe it does…let’s look at the facts.
How does the economy stack up?
The Reserve Bank looks at two main indicators to gauge the market: unemployment and inflation.
According to Stats NZ, unemployment sits at 4.2% as of 1 May. That’s very good. It’s almost as good as just before the Great Financial Crisis in 2008, back when the economy was peaking.
Then, for inflation, the consumer price index has been bumping around 1.5% since December of 2016. The target is 2%. Again, that’s a pretty good result. A tiny bit low, but no reason for alarm.
So, in terms of the RBNZ’s indicators, the NZ economy is dandy.
GDP is rockin’ and rollin’ with annual growth rates nicely between 2.5% and 4%.
Wages up 1.5%-2% annually. Maybe a little low, but not remarkably so.
The trade balance has been quickly growing in favour of Kiwi exports to a trade surplus of almost a billion dollars in March. That’s great for New Zealand businesses sending their goods overseas.
The New Zealand Stock Exchange (NZX) keeps breaking all-time high record after record…and has recently surpassed the 10,000 mark. Awesome for investors.
Even the housing market continues to excite, having jumped 27% between March of 2015 and March 2019. Sure, it may not be fizzling like it was a couple months ago, but the housing market is still a far cry from a correction…with house prices plateauing between -0.5% and +0.5% in the short-term.
And as of March 2019, the government was running a surplus of $2.5 billion in the nine months prior, above forecast by $300 million. In other words, the state is spending less than it’s taking in…which is rare for developed economies. That’s a strongly positive signal.
So, of the major economic indicators, almost all are humming along happily. A few less so. But none are triggering any alarm bells. In general, the economy is performing well.
So why the double-whammy of fiscal stimulus and a rate cut?
Maybe they feel something’s not right…perhaps they understand that what goes up must come down…and we’re at the top of the arc.
Maybe they know it’s high-time for a correction to put this blanket optimism in check…
An event to bring New Zealand back to Earth…
So they’re pulling all the stops to keep the power on, throwing the left jab of easy money followed by a $6.1 billion right hook. And if John Maynard Keynes was right, then they should be able to fend off the imminent downturn…at least for a little while.
Why does this matter to you?
Because while this battle for the economy happens behind closed doors, you and I are going about the daily grind, making purchase decisions, taking risks, moving money around. And if we are remotely intelligent, we should be going about those activities with the long-term in mind.
And right now, the actions of the RBNZ and Shane Jones indicate that the future is in jeopardy.
Or, at least, the future is ‘at risk’ enough for these policymakers to start dipping into their emergency piggy banks.
That’s valuable insight for the rest of us…and suggests we might want to follow their lead and get our accounts in order.
What does that look like?
Basically, it’s the inverse of what policymakers are doing. They’re ramping up spending and encouraging borrowing. You’d want to do the opposite. Here are three tips:
- Reduce your debt. While it may seem prudent to take on debt in a low-rate environment, debt can be a back-breaking burden when money gets tight. Consider how you’ll be able to service your debt if one or more members of your household find themselves unemployed.
- Minimise your expenses. Imagine a crash does happen…what things are you spending money on today that you’d kick yourself for down the road? That fishing boat? That diamond necklace? That new iPhone?
- Go defensive on your investments. When the stock market and property market have been on seemingly endless bull runs, it’s natural to keep edging towards more risk. But that’s also what leads to bubbles…which pop…and investors pay. Think ahead; think defensive.
If you do these three things, you’ll be much more prepared if things go south.
Editor, Money Morning New Zealand
PS: If you’re arming up for an economic downturn, I’m interested to hear what you’re doing. Buying gold? Term deposits? A bunker? Let me know so I can share your tips with your fellow Money Morning NZ readers! You can reach me at firstname.lastname@example.org