Ashburton District Council has been warned to figure in the fallout from a recession into its planning for next year.
That’s what Bancorp merchant bank’s corporate services manager Miles O’Connor told the council, saying a recession was coming in 2023.
He stressed that the council, preparing to start work on its annual plan in January, would need to heed that advice.
“With the Reserve Bank Governor saying we are going into a recession, and with the yield curve (interest rates) suggesting we are going to, if you’re a betting man or woman then you would put money on the fact we are going into a recession,” O’Connor said.
In simple terms, a recession is when there’s a general decline in economic activity and a widespread drop in spending, lasting for two three months. It can be triggered by various events, such as a financial crisis, high interest rates, rising unemployment, falling consumer confidence and economic shocks caused by unpredictable events like natural disasters, a war or a pandemic.
Long recessions could lead to a tough time for businesses, job loses, and rising unemployment, which is why Reserve Bank Governor Adrian Orr attempted to force a spending change last month.
“It’s quite unusual for a Reserve Bank Governor to say let’s stop spending and see if we can push the country into recession to get inflation under control,” O’Connor said.
Inflation is the highest it’s been in around 30 years at 7.2 per cent.
“The expectation there will be that inflation is under control and we’ll be in a recession, and so we’ll have to start easing rates,’’ O’Connor said.
“The Reserve Bank has come out and said that inflation is a bigger evil than a recession.
“I’m not sure about that.”
Ashburton Mayor Neil Brown said there would definitely be a recession if the official cash rate (OCR) lifted again. The OCR was the rate at which banks could borrow short-term from the Reserve Bank. When the OCR goes up, it increases what they need to charge customers to remain profitable. When it falls, banks can offer cheaper loans.
Last month, Orr announced the official cash rate’s (OCR) biggest ever rise, a 75 base point hike.
“I think there is enough shock gone through the system now. It will hurt,” Brown said.
Councillor Russell Ellis highlighted that with work on the annual plan beginning next month, councillors would need to take into account the rising cost of living and threat of recession when considering its budgets and setting rates.
- By Jonathan Leask