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Mike's Minute: Gloomy economic days are just beginning

Author
Mike Hosking,
Publish Date
Fri, 17 Jun 2022, 9:42am

Mike's Minute: Gloomy economic days are just beginning

Author
Mike Hosking,
Publish Date
Fri, 17 Jun 2022, 9:42am

Is it a case of looking too hard? How is it possible I see a recession and banks don't?

The much-anticipated GDP number for the first quarter of the year is -0.2 percent. To have a recession you need two consecutive quarters of negative growth, we now have one.

I have been trying to explain that we are headed for recession for months. You can't have a recession if you don't have negative growth, and not one bank was forecasting a negative number for yesterday. Therefore, they were saying there is no recession.

I need to be right for this current quarter, Q2. I am not 100 percent convinced I am,  but it's going to be dangerously close. The difference between Q1 and Q2 is a war, an oil shock, and a market correction.  

Here is the frightening thing; those that are forecasting recession are doing so later this year, possibly into next.

So, if I am right, and then so are they, that's more than one recession. That’s quite possibly a double dip recession.

So, what is it? How is it these so-called experts can't see what you and I do? How is it until recently the central bank whiz kids didn’t see the need to boost interest rates until they did and now they are panicking?

US Federal Reserve Chair Jerome Powell laughed at a 75-point rise, until he did it yesterday.

The Australian Reserve Bank talked of no need to up rates, until they upped rates. And the reason they didn’t need to raise rates was because they didn’t see inflation, until they saw inflation. They now see inflation at 7 percent.

And Australia doesn’t have an inflationary problem like we do, and yet we are saying our inflation has peaked at 6.9 percent. So, our inflation is better than Australia's? Are you kidding?

What I know is what I see. Maybe that’s an advantage? Maybe I spend more time in the real world and less time on spreadsheets.

What I know from the real world is the Government gave us $50 billion plus to blow on crap, and blow it we did.

But once we had blown it and we needed to pay for stuff ourselves, the price of everything was rising, and we had to cut back. And when you cut back and 70 percent of your economic activity is in the services sector, guess what happens? You go backwards.

This is exactly what we have done.

Economically, this is a disaster. The economy that Grant Robertson says is going so well, isn't.

Australia's Q1 number was 0.8% growth. New Zealand's was a 0.2% slide. We're a full percentage point behind them.

The borders are open, and the brain drain is on.

I don’t blame the forecasters; we all get stuff wrong. But if you can't see a recession when it's knocking on your door, if you can't smell the lack of confidence, then it's time you got off the whiteboard and walked the streets for a while.