At the 2018 RTF Conference, economic commentator and former ANZ Bank chief economist Cameron Bagrie explained how the New Zealand economy was about to go through a frustrating environment of slowing, grumpy growth and increasing cost pressures that he termed "Grumpflation."
At this year's conference Bagrie introduced some new phrases to describe just where NZ could be heading over the next two to three years, and it's fair to say the path ahead is a bit rocky.
Is the economy heading for the handbasin, the bathtub or the toilet?
These bathroom amenities are the three possible outcomes that Bagrie foresees for the NZ economy, and all three describe some form of economic slowdown.
The best-case scenario – the handbasin – is where the economy starts to pick up in 2020. It relies on a couple of unlikely situations, says Bagrie – the Reserve Bank getting the benefits from its interest rate cuts and further pushing the NZ dollar down to help out the export sector.
This would need to combine with an increase in Government spending and the Government finally starting to deliver on infrastructure investment.
The bathtub scenario sees things slow a bit further and the economy linger at the bottom of the economic cycle a little bit longer.
"In this scenario monetary policy sort of works, but people have a whole lot of debt, the Auckland housing market is unaffordable and Government spends unwisely – not inspiring confidence across the economy," says Bagrie.
"The environment is a little bit niggly and we are getting growth, but it is of the grumpy variety. It's not a downturn – there is a plug in the bottom of the bath and we are going to be okay – but we are going to underperform.
"Option three is the toilet…..and we don't want to talk about option three," says Bagrie.
"It's the financial crisis, part two, and we don't have enough policy ammunition to get the economy back on a strong footing."
What is the international outlook?
The first thing Bagrie asks us to consider is that the international outlook is a bit bleak. Interest rates around the globe are so low there is very little room to drop them further to stimulate growth and there are some major political problems in the form of Brexit, Middle East instability, protectionism and mixed attitudes to globalisation that are driving unease.
As Bagrie points out, these political problems are often more difficult to fix than the economic ones.
NZ has not really been impacted by the international problems so far, but the economy has nevertheless slowed from around 4% to 2% growth.
What about our domestic situation?
According to Bagrie, in many sectors we don't have the workforce capacity, which as trucking operators know, is particularly true of the transport sector. The dairy sector is going through some financial stress, with banks turning off the lending tap, although other pockets of the rural community are doing well.
There is also considerable nervousness about Government policy, as the Government doesn't seem to have its act together….making the private sector nervous, which is reflected in various mood-of-the-boardroom surveys.
"When businesses get nervous about Government policy, they get cautious and don't tend to invest or hire," explains Bagrie.
"That is precisely the state that NZ sits in right at the moment." We are also suffering from an economic hangover from "partying too hard" when the times were good, he says.
"It's household debt levels, it's whether we're building too many houses, it's whether we're seeing a whole lot of shadow banking sector activity, it's whether we've got too much debt in too many sectors.
"But we've also got lower interest rates, not higher interest rates. That's a good news story….making sure the economic party can continue."
These lower interest rates benefit borrowers and are designed to fire up the housing market, but it makes things very difficult for savers and retirees.
What is the Government doing?
Bagrie is concerned at political considerations driving the policy agenda. This is leading to poor Government spending on pet transport projects instead of economy-enhancing roads.
Subsidising rail he describes as "taking from Peter to pay Paul," and investing in more and more branch networks across NZ – from an economic point of view – "just doesn't work."
So, which of Bagrie's bathroom amenities is the NZ economy facing? "My personal view over where the economy sits – we are in the bathtub," he reckons: "I think we will be ok, but Grumpflation, part two, is here."
How should businesses respond to Grumpflation?
Businesses that embrace the long game will get ahead, according to Bagrie. For the last 20 years a lot of NZ businesses have focused on short-termism and making quick money, which is a model that needs to change.
Bagrie explained how the NZ banking sector in the 1990s used to think longterm: "They ran an economic model that was about looking after their staff, who in turn looked after the customers….and if the customers were looked after, the shareholders made a buck."
In a lot of sectors, including the banking sector, maximising short-term profits has come at the expense of customers and staff and the longterm sustainability of the business.
"We are seeing signs around the globe and across the economy that those behaviours need to shift. We need to be environmentally responsible; we must connect with our communities and look after our staff," advised Bagrie.
"Organisations that embrace the long game are going to be the ones that get ahead. Those that remain focused on short-termism will get caught out."