Interest rates are high, unemployment is rising, the cost of living is oppressively high, and almost everyone is feeling the pinch.

How did New Zealand get here?

Covid started the downturn

The pandemic was a gigantic global sh*tstorm, and we’re still feeling the after effects.

It’s been a long and complex process, but one major cause of our pain right now is that governments increased the supply of money during Covid. This happened almost everywhere, because governments wanted to do two things:

1. spend on the pandemic response
2. hand out money to people and businesses so their economies didn’t grind to a halt.

More money flowed into the global economy at a time when it was hard to buy goods – and we weren’t allowed to buy services. So, the price of goods and materials went up, which led to the price of services also going up, which meant we all needed higher salaries to keep up with the rising cost of living … and that’s inflation. In 2022, inflation went on a tear, and Putin made it worse by invading Ukraine.

Fighting inflation a painful process
The main job of the Reserve Bank is to keep the economy stable and keep inflation in its target zone. It uses “monetary policy” to achieve its goals. In practice, the Reserve Bank’s main tool to fight inflation is the official cash rate, or OCR. When the OCR goes up, interest rates go up.

A higher OCR makes life harder for everyone. The Reserve Bank knows this, but it must fulfil its legislated responsibilities to drive down inflation, so it does it anyway. Now higher interest rates are putting pressure on every sector of the economy. Oh, and inflation is still too high, so the OCR isn’t coming down yet.

Sales down, pressure up on workers
With higher interest rates, we are all spending less, for a combination of reasons, including:

• there’s no money left over after paying for the essentials
• we need more money to pay our mortgages
• we’ve lost our jobs
• we can’t get a loan or extend an existing loan.

Lower spending by households means consumer businesses are struggling, so they are spending less too, which has a knock-on effect for their suppliers.

If you work at a business that’s affected (which is pretty much all of them), your employer probably isn’t hiring anyone new or replacing anyone who leaves.

You might be doing your work, plus the work of the people who have left. You could quit, but finding a job is extremely challenging right now. You’re feeling stuck, and skint.

Possibly you no longer have a sense of being in control of what happens in your life, or you don’t feel like you have any good decisions available. It’s all pretty demoralising.

Jobs are more stressful, the cost of living is higher, it’s winter, power bills are high, everyone is grumpy, and the country’s new slogan is “Survive til 25”.

Yep, things are sh*t right now.

Stay in touch with Amy’s analysis of New Zealand’s economy in the second part of 'Why is everything so sh*t right now' to be posted in August.