New Zealand’s rock star economy has crashed and burned within 18 months. The hotel room has been trashed, the limo is in the pool and hangovers have taken the place of Champaign breakfasts.
The writing has been on the wall for some time. The downward spiral of dairy prices, a NZ dollar in free fall, dwindling interest rates, falling business confidence and a turn-down in building activity in Christchurch are all signs that the country has had the requisite 15 minutes of fame to qualify as a rock star. New Zealand is now relegated to the ‘one hit wonder’ section of the Golden Oldies charts.
Just when it looked like a session in rehab would save it, one of the country’s leading economists is now warning of a recession risk. If you’re on the verge of buying tickets for a NZ concert tour this may be an excellent time to see what else is available.
BNZ head of research Stephen Toplis said the biggest shock to New Zealand’s economy had been the ongoing demise of the dairy sector. he price of whole milk powder – which is responsible for about 75 per cent of Fonterra’s farmgate milk price – plunged 10.8 per cent to US$2054 a tonne at the latest GlobalDairyTrade auction this week.
The overall index fell 5.9 per cent to record its ninth consecutive decline, driving the New Zealand dollar to a fresh five-year low of US66.59c last night. Economists are now picking the Reserve Bank to cut the official cash rate back to 2.5 per cent (from 3.25 per cent currently) in a complete reversal of a rate tightening cycle that began in early 2014.
Toplis said “it is not hard to envisage a scenario where a recession becomes imminent…” and he says it could be prompted by the following:-
- A continuation of the dairy price decline (which, Toplis said, was quite plausible).
- A drought hitting dairy production.
- A fall in Christchurch house prices sparking generalised uncertainty in the wider housing market (there was already some evidence of this, he said).
- A drop in investment activity and a weakening economy resulting in lower net migration inflows.
That last factor could be the killer blow. New Zealand relies on positive net migration to boost income and keep the economy afloat. Each migrant and international student is worth tens of thousands of dollars to a rock star economy that is more milk than champagne.
And with milk prices in free fall due to over supply who knows where it will end.
Dairy prices fell at Fonterra’s international auction on Wednesday, the eighth fall in a row taking prices to 30 per cent below their recent peak in March.
This means farmers are likely to receive a lower payout from the dairy giant – which will have a strong effect on the wider economy dampening consumer spending, investment and government revenue.” source
The outlook must be grim because even Steven Joyce has warned of a “bumpy economy amid gloomier bank forecasts.”
Incidentally, despite falling international dairy prices, and supply outstripping demand, many New Zealanders cannot afford to buy milk. Dairy products in the land of the Anchor cow are so high that the Prime Minister was forced to dismiss it while advising the audience to drink water. Meanwhile the number of rickets cases in NZ is on the climb.
Meanwhile, over on the other side of the globe, America has been pouring its surplus milk lake down the drain and slaughtering dairy cows since January, in an effort to stabilise milk prices. A gallon of milk is now less than $3 USD (.I.e. 3.8 Litres for $4.48 NZD).
All well and good, let’s all drink water instead of milk. But do you know how poor NZ’s water quality is? Ironically, most of the environmental degradation in New Zealand is the dairy industry pollution of drinking water catchments (NZ has 6.5 million dairy cattle, up 27% since 2007.. Source).
If New Zealand is the rock star, dairy cows are the drums and lead guitar.
You may also find interesting
Holy cow! milk supplies overwhelm US dairies (Stuff.co.nz)
There’s so much milk flowing out of US cows these days that some is ending up in dirt pits because dairies can’t find buyers.Domestic output is set to be the highest ever for a fifth straight year. Farmers are still making money as prices tumble because of cheaper and more abundant feed for their herds. Supplies of raw milk are topping capacity at processing plants in parts of the US and compounding a global surplus even with demand improving.
Agri-Mark, a 1200-dairy cooperative in New England that had US$1.1 billion (NZ$1.64bn) of sales last year, started pouring skim milk last month into holes used for livestock manure. It was the first time in five decades, and farmers so far have unloaded 12 truckloads, or 272 metric tons. While having small amounts of milk spoil or go unsold isn’t unusual, Northeast dairies dumped 31 per cent more this year through May than the same period of 2014, government data shows… read on
6 thoughts on “New Zealand’s Rockstar Economy Crashes and Burns. Recession Looms”
My message to all UK citizens, people from USA & europe is this:. DO NOT EMIGRATE TO NEW ZEALAND! My wife & I plus kids moved from UK to NZ 5 years ago. It is totally correct that the only real jobs are based in the Cities such as Auckland, Wellington, Christchurch. Outside of these three cities there are next to no job prospects in NZ. This is because the rest of NZ consists of small dreary run down towns. There is an awfull lot of nepotism and xenophobia in small town NZ. Beacause of this you will find it very difficult to find meaningful employment. The NZ goverment will try to entice you with more visa points to settle in a rural area of NZ. DO NOT be fooled by this trick! Once you are settled in NZ & the NZ government have your visa money & you have transferred your overseas money to NZ to puchase a substandard house by UK & European standards, you will then find out that the NZ government only want your financial assests & could’nt care less if you find emplyment in NZ or not. They know they will have your hard earned money already & willnot care if you sink or swim! Outside of three main cities New Zealand is very similar to rural Wales ie inhabited by inbred, xenophobic redneck rural types However, unlike Wales in New Zealand you will not be able to jump in your car & escape to somewhere more civilised. Be Warned!
The media never accept that New Zealand is anything, but the best economy in the world. On that basis farmers were encouraged to over work and polute the fields via diary products 1/ sell overpriced milk to the locals ripping them off 2/ sell overpriced milk solids to China ripping them off. The only issue where NZ lying culture could not corrupt is the fact that Milk solid prices are decided at world auctions, so now that 1kg of milk solids is priced around forecast $3.80 ($5.25 we are told for NZ farmers to break even) now the **** has hit the fan. The Emperor has again been shown to wear no clothes. Too much reliance on one sector means a crash is coming. Interest rates are being smashed down. House prices are ridiculously high for cardboard boxes with no insulation and, take away the mal-investment in the over-inflated construction sector, with no diversification away from commodity and you have it, a crashing NZ dollar too, which will mean higher petrol prices and imported goods. The NZ government always talked up the economy without seeking to fill any gaps when a downturn was due. Now the piper has to be paid. If you have money outside NZ, wait until the NZ dollar falls another 25% at least and bring it in and make a killing. I have money in the UK. I figure I will wait until I can exchange for over $2.90 per $1 before starting to bring in. Given all the sheer incompeteance around the NZ economy, I would not be surprised if I will get $3.50 per $1 before turning the cycle. I’m just a stupid foreigner..yes , for sure, thank you for putting your heads in the sand Kiwiland while I make a killing on the exchange markets!
Fonterror is also busy shedding staff and “rightsizing” (I love corporate BS-speak) /sarcasm.
They are, of course, understandably “shocked” that the news was “leaked”, it is completely dishonorable for peasants to betray the trust of their superiors (that have them in “at-will” job contracts)
We’re only 1 year into the 5 year milk GLUT envisaged by Goldman Sachs
Auckland Housing bubble likely to pop in conjunction with Sydney and Melbourne
Kiwi Retailers likely to go under due to competition from the internet / overseas chains
Generally low labour productivity – http://www.oecd.org/newzealand/47471775.pdf , http://croakingcassandra.com/2015/07/02/productivity-growth-worse-than-in-greece/
Things won’t look too rosy when ‘Daisy the Magic Cow’ breaks it’s legs and the house of cards come tumbling down.
It also becomes very light on the heart when I say to myself: It’s not your country, you are just a tourist here, you were not born to live here all your life, they created the mess, they deserve it, they and generations of their children are to live in it, it’s their not your Prime Minster who is a clown, to represent them, not you, it’s their, not your, job to sort it out…
Well, what else are the dope smoking idiots capable of? Look at everything! Houses made out of carton on a paddock that grows nothing but still costs you millions. Kiwi land of milk and honey, welcome, welcome, we need more idiots to keep us going! Sometimes I’m thinking it’s awesome this is not my country, will never be, and that I won’t be a part of it because of its deep arrogant and racist nature. Yes, I’ve made a mistake coming here to live, yes I’ve been lonely, bullied, degraded and snooped on while being here, but I won’t be ashamed of it being MY FATHERLAND, the cradle of my culture, the essence of who I am.
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