Grant’s Kōrero: The economic outlook and what this means for Whai Rawa


In a kōrero I shared last year, I discussed New Zealand’s high inflation rate which is the rate at which grocery, petrol, rents and other prices are rising.  At that time, the Reserve Bank was taking steps to cool the economy by pushing up interest rates in an effort to reduce future price increases.  Almost a year later, with signs that inflation is easing, the Reserve Bank has signalled that it doesn’t intend to increase interest rates further and expects that interest rates will start to reduce in 2024.  

An independent economist, Rodney Dickens from Strategic Risk Analysis, has outlined his views on what this all means for the next year or two.  His assessment is that a solid recession is needed to fix the inflation problem, requiring interest rates to stay high for some time yet.  However, Dickens believes it is possible that interest rates will instead fall, resulting in an economic recovery with price rises kicking off once more – meaning that this inflation will need to be tackled again.

If this is correct the battle against inflation could last another 2-3 years, the economy’s production of goods and services may not experience sustained growth again for some time, and businesses may sell less as a result and in turn, make less money.  He also expects unemployment to increase as businesses reduce the number of their employees. The residential housing market has slowed over the past year with sales and prices falling. Dickens believe this fallout has not ended, but there could be some temporary recovery if there is a temporary fall in interest rates.

For Whai Rawa, as with all businesses, we need to plan for the potential it could be 2-3 years before the economic environment is favourable for more than a temporary period and for uncertainty about how things might unfold over the next 2-3 years. We pay interest on our borrowings – so we need to manage that carefully, which includes looking to “fix” (or hedge) our interest rates where appropriate.  We are in a good position with a portfolio of ground leases and commercial buildings at Te Tōangaroa which will continue to produce rental income. We have bare land, which can be used to develop and sell residential houses. Our new houses at Oneoneroa are still selling well. While this is encouraging for future development, we need to watch construction costs which have been increasing rapidly and carefully consider whether the buyers will be there if we build more.  We may need to think about other sorts of development, like building homes to rent and ultimately, we will need to continue to be prepared to hold land long-term. 

Of course, businesses, like those in Te Tōangaroa that pay us rent, may have cashflow issues if the economy gets tighter, and we need to monitor rent payments and our tenants closely.  We may need to work with them to help them through this period.  If we have vacant space in our buildings, it may be harder to find a tenant for it, and we need to think ahead, and be proactive in seeking out new tenants. 

But, while we are being cautious, we are also positive.  Whai Rawa has always taken a prudent approach to managing the assets, so we are able to withstand tough times. During such times, we can also expect strong investment opportunities to arise and we are in a good financial position to be able to invest in those. We will continue to assess opportunities that are presented always with the focus of growing our assets to enable the aspirations of Ngāti Whātua Ōrākei.