
It's An Eventful Week Ahead
It's a big week. For us of course, our focus is on the RBNZ's Monetary Policy Review on Wednesday. After six straight meetings delivering rate cuts, totalling 225bps, the RBNZ looks set to take a breather.
The last time we heard from the RBNZ was, simply put, kind of weird. The May statement read dovish, with forecasts for the Kiwi economy appropriately downgraded. Similar to our house view, the RBNZ were clear to point out that trade uncertainty presents downside risks to growth and inflation. But the communication by RBNZ officials, along with the 1-5 dissenting vote, stopped short in signalling an easing bias consistent with their outlook and OCR track.
Market pricing allows the RBNZ to skip this meeting, and come back in August without causing a stir. Just 3bps of a cut (12% chance) is priced in for Wednesday. For August, the market is pricing in 16bps (just shy of a 65% chance) of a rate cut.
Wednesday's decision is another case of what we think they should do versus what we think they will do. While a hold is the likely outcome, we recommend a cut. The need for lower rates is clear. The RBNZ themselves have signalled the need for further cuts. So why wait? Yes, there is worry right now about the recent spike in inflation we're experiencing. But monetary policy makers must look through short-term volatility, even if it's eye-watering.
Monetary policy is set today to influence the medium-term. And risks to the medium-term outlook are skewed to the downside. A global growth slowdown is expected with US tariffs. NZ export prices may come under pressure. Also, significant spare capacity remains within the Kiwi economy. Both these factors are disinflationary. And we've seen that in the QSBO survey. There is a net 2% of firms looking to reduce their prices in the coming months. History tells us that pricing behaviour like that only happens during recessions. All up, the real risk is that inflation undershoots the RBNZ's 2% midpoint.
While the RBNZ may not pull the trigger this week, we expect them to maintain a dovish bias due to the balance of risks.
Beyond the RBNZ, we'll also hear from the RBA this week. Meeting tomorrow, the RBA is expected to resume their easing cycle and deliver a 25bp cut to 3.60%. Having been late to hike, the RBA has also been late to cut. A cut tomorrow would mark just the third in this cycle. Compared to the 6 cuts we've had here at home. But the tides have turned. While the RBNZ has turned more ambiguous, the RBA has become more dovish. Because Aussie inflation is sitting at the lower end of the RBA's target band, and the labour market starting to lose its lustre.
And of course, we can't forget that July 9th (US time) marks the deadline of President Donald Trump's 90 day pause on reciprocal tariffs. Now, with just 3 deals across the line out of the 70+ countries who were set to come to the negotiation table, an extension of some sort seems likely. That, or a mad dash of deals to the finish line for negotiations. Although we're now also hearing about a more 'Dear John' letter-style approach from Trump with the White House set to send letters to countries outlining its new tariff rate.
Still, as we all know, no one can truly predict Donald Trump's next move. We expect a route of de-escalation to remain the path forward. But we remain wary of the risks at present. Just last week, Trump threatened Japan with a 30-35% tariff rate, up from their 23% liberation day tariff, if a deal wasn't reached before the July 9th deadline. Again, maybe it's just more big talk, but it's a reminder that no de-escalation is yet set in stone. And in any case, the ante is high over this week as we wait for developments to unfold.
At least in some semi-positive news, a trade deal was struck between the US and Vietnam last week. Under the deal, the US will now impose a 20% tariff on Vietnamese exports, compared to the 46% announced on Liberation Day, but higher than the 10% of the last 3 months. Additionally, the agreement also sees the US implementing a 40% tariff on any products originating from another country sent through Vietnam for final shipment to the US – a shot likely fired towards China. Meanwhile in exchange, Vietnam is giving the US tariff-free access to its markets.
Charts of the Week: The 'on the ground' business feel.
Last week's Quarterly Survey of Business Opinion by NZIER showed that the gap between hopeful optimism and the harsh reality of daily business, continues to widen. Meanwhile firms are saying they are feeling less price pressure and passing on less pressure. The argument for stimulatory monetary policy is unequivocal.
Price-related indicators suggest that inflation remains well-contained. Both cost and pricing indicators eased over the June quarter. Fewer firms reported an increase in costs, from half of firms to a net 42%. The improvement was likely supported by the recent appreciation in the Kiwi dollar after starting the year on the backfoot (trading in the 55-56c range). At the industry level, the experience however is mixed. Fewer retailers experienced higher costs over the quarter, while cost pressures have intensified in the building sector. A net 59% of builders reported increased costs, up from net 35% in Q1). Despite this, the building sector reported the biggest fall in pricing – from a net 3% raising their prices last quarter, to a net 35% decreasing their prices. Meanwhile, pricing across retailers held steady. Overall, the weak demand environment continues to weigh on firms' pricing power. A net 1% of firms had dropped their prices over the quarter, and a net 2% expect to do the same in the coming quarter. Outside of the Covid pandemic, 2009 was the last time the survey pointed to an expectation for price declines.
Another piece of good news to come out of the survey was the long awaited lift in investment intentions. After 13 consecutive quarters of negative investment intentions (excluding a short-lived blip following the election), investment intentions are finally back in the black. Well, mostly. A net 1% of firms are still planning on reducing investment in buildings. But a net 8% of firms are planning to get back to investing in plant and machinery over the coming year. The Government's 'Investment Boost' scheme has likely helped get some firms off the side lines. But we imagine others will still be holding off until they have more conviction about a sustained recovery in demand. Looking over at hiring, firms continued to cut headcount over Q2, though fewer than over Q1. A net 12% of firms reduced staff numbers in the June quarter compared with the net 17% in the March quarter. Although it seems hiring in the quarter ahead seems more promising with a net 4% of firms looking at expanding headcount.
Check out our full review – Reality bites, as business optimism improves.

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Scoop
5 hours ago
- Scoop
Government AI Strategy To Boost Productivity
Minister of Science, Innovation and Technology Science, Innovation and Technology Minister Dr Shane Reti has launched New Zealand's first AI Strategy to boost productivity and grow a competitive economy. 'AI could add $76 billion to our GDP by 2038, but we're falling behind other small, advanced economies on AI-readiness and many businesses are still not planning for the technology,' says Dr Reti. 'We must develop stronger Kiwi AI capabilities to drive economic growth, and this Strategy sends a strong signal that New Zealand supports the uptake of AI. 'The Government's role in AI is to reduce barriers to adoption, provide clear regulatory guidance, and promote responsible AI adoption. 'We're taking a light-touch approach, and the Strategy sets out a commitment to create an enabling regulatory environment that gives businesses confidence to invest in the technology. 'Private sector AI adoption and innovation will boost productivity by unlocking new products and services, increasing efficiency, and supporting better decision-making. 'New Zealand's strength lies in being smart adopters. From AI-powered precision farming techniques to diagnostic technology in healthcare, Kiwi businesses can tailor AI to solve our unique challenges and deliver world-leading solutions.' The Strategy aligns with OECD AI Principles and the Government will continue to work with international partners on global rules to support the responsible use and development of AI. 'New Zealanders will need to develop trust and give social licence to AI use, so the Government has also released Responsible AI Guidance to help businesses safely use, develop and innovate with the technology,' says Dr Reti. The Government will use existing legislation and regulations such as privacy, consumer protection and human rights, to manage risk and privacy concerns.

1News
5 hours ago
- 1News
Trump to put 25% tariffs on Japan, South Korea
US President Donald Trump set a 25% tax on goods imported from Japan and South Korea, as well as new tariff rates on a dozen other nations that would go into effect on August 1. Trump provided notice by posting letters on Truth Social that were addressed to the leaders of the various countries. The letters warned them to not retaliate by increasing their own import taxes, or else the Trump administration would further increase tariffs. "If for any reason you decide to raise your Tariffs, then, whatever the number you choose to raise them by, will be added onto the 25% that we charge," Trump wrote in the letters to Japanese Prime Minister Shigeru Ishiba and South Korean President Lee Jae-myung. The letters were not the final word from Trump on tariffs, so much as another episode in a global economic drama in which he has placed himself at the centre. His moves have raised fears that economic growth would slow to a trickle, if not make the US and other nations more vulnerable to a recession. But Trump is confident that tariffs are necessary to bring back domestic manufacturing and fund the tax cuts he signed into law last Friday. He mixed his sense of aggression with a willingness to still negotiate, signalling the likelihood that the drama and uncertainty would continue and that few things are ever final with Trump. ADVERTISEMENT Imports from Myanmar and Laos would be taxed at 40%, Cambodia and Thailand at 36%, Serbia and Bangladesh at 35%, Indonesia at 32%, South Africa and Bosnia and Herzegovina at 30% and Kazakhstan, Malaysia and Tunisia at 25%. Trump placed the word "only" before revealing the rate in his letters to the foreign leaders, implying that he was being generous with his tariffs. But the letters generally followed a standard format, so much so that the one to Bosnia and Herzegovina accidentally addressed its woman leader, Željka Cvijanović, as "Mr. President". The morning's headlines in 90 seconds, including what the jury saw at the mushroom murder trial, where house prices are climbing, and why YouTube's biggest star has business plans in NZ. (Source: 1News) Trade talks have yet to deliver several deals White House press secretary Karoline Leavitt said that Trump was by setting the rates himself creating "tailor-made trade plans for each and every country on this planet and that's what this administration continues to be focused on". Following a now well-worn pattern, Trump plans to continue sharing the letters sent to his counterparts on social media and then mail them the documents, a stark departure from the more formal practices of all his predecessors when negotiating trade agreements. The letters are not agreed-to settlements but Trump's own choice on rates, a sign that the closed-door talks with foreign delegations failed to produce satisfactory results for either side. ADVERTISEMENT Wendy Cutler, vice president of the Asia Society Policy Institute who formerly worked in the office of the US Trade Representative, said the tariff hikes on Japan and South Korea were "unfortunate". "Both have been close partners on economic security matters and have a lot to offer the United States on priority matters like shipbuilding, semiconductors, critical minerals and energy cooperation," Cutler said. Trump still has outstanding differences on trade with the European Union and India, among other trading partners. Tougher talks with China are on a longer time horizon in which imports from that nation are being taxed at 55%. The office of South African President Cyril Ramaphosa said in a statement that the tariff rates announced by Trump characterised the trade relationship with the US, but it would "continue with its diplomatic efforts towards a more balanced and mutually beneficial trade relationship with the United States" after having proposed a trade framework on May 20. White House press secretary Karoline Leavitt speaks with reporters in the James Brady Press Briefing Room at the White House. (Source: Associated Press) Higher tariffs prompt market worries, more uncertainty ahead The S&P 500 stock index was down 0.8% in Monday trading, while the interest charged on 10-year US Treasury notes had increased to nearly 4.39%, a figure that could translate into elevated rates for mortgages and auto loans. ADVERTISEMENT Trump has declared an economic emergency to unilaterally impose the taxes, suggesting they are remedies for past trade deficits even though many US consumers have come to value autos, electronics and other goods from Japan and South Korea. The constitution grants Congress the power to levy tariffs under normal circumstances, though tariffs can also result from executive branch investigations regarding national security risks. Trump's ability to impose tariffs through an economic emergency is under legal challenge, with the administration appealing a May ruling by the US Court of International Trade that said the president exceeded his authority. It's unclear what he gains strategically against China — another stated reason for the tariffs — by challenging two crucial partners in Asia, Japan and South Korea, that could counter China's economic heft. "These tariffs may be modified, upward or downward, depending on our relationship with your Country," Trump wrote in both letters. Because the new tariff rates go into effect in roughly three weeks, Trump is setting up a period of possibly tempestuous talks among the US and its trade partners to reach new frameworks. "I don't see a huge escalation or a walk back — it's just more of the same," said Scott Lincicome, a vice president at the Cato Institute, a libertarian think tank. Trump initially roiled the financial markets by announcing tariff rates on dozens of countries, including 24% on Japan and 25% on South Korea. In order to calm the markets, Trump unveiled a 90-day negotiating period during which goods from most countries were taxed at a baseline 10%. So far, the rates in the letters sent by Trump either match his April 2 tariffs or are generally close to them. ADVERTISEMENT The 90-day negotiating period technically ends on Wednesday, even as multiple administration officials suggested the three-week period before implementation is akin to overtime for additional talks that could change the rates. Trump plans to sign an executive order on Monday to delay the official tariff increases until Aug. 1, Leavitt said. Congressionally approved Trade agreements historically have sometimes taken years to negotiate because of the complexity. Administration officials have said Trump is relying on tariff revenues to help offset the tax cuts he signed into law on July 4, a move that could shift a greater share of the federal tax burden onto the middle class and poor as importers would likely pass along much of the cost of the tariffs. Trump has warned major retailers such as Walmart to simply "eat" the higher costs, instead of increasing prices in ways that could intensify inflation. Josh Lipsky, chair of international economics at The Atlantic Council, said that a three-week delay in imposing the tariffs was unlikely sufficient for meaningful talks to take place. "I take it as a signal that he is serious about most of these tariffs and it's not all a negotiating posture," Lipsky said. Tugboats assist a container ship as it prepares to dock at the Manila International Container Terminal at the Philippine capital. (Source: Associated Press) Trade gaps persist, more tariff hikes are possible ADVERTISEMENT Trump's team promised 90 deals in 90 days, but his negotiations so far have produced only two trade frameworks. His outline of a deal with Vietnam was clearly designed to box out China from routing its America-bound goods through that country, by doubling the 20% tariff charged on Vietnamese imports on anything traded transnationally. The quotas in the signed United Kingdom framework would spare that nation from the higher tariff rates being charged on steel, aluminium and autos, though British goods would generally face a 10% tariff. The United States ran a US$69.4 billion trade imbalance in goods with Japan in 2024 and a US$66 billion imbalance with South Korea, according to the Census Bureau. The trade deficits are the differences between what the US exports to a country relative to what it imports. According to Trump's letters, autos would be tariffed separately at the standard 25% worldwide, while steel and aluminium imports would be taxed on 50%. This is not the first time that Trump has tangled with Japan and South Korea on trade — and the new tariffs suggest his past deals made during his first term failed to deliver on his administration's own hype. In 2018, during Trump's first term, his administration celebrated a revamped trade agreement with South Korea as a major win. And in 2019, Trump signed a limited agreement with Japan on agricultural products and digital trade that at the time he called a "huge victory for America's farmers, ranchers and growers". ADVERTISEMENT Trump has also said on social media that countries aligned with the policy goals of BRICS, an organisation composed of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates, would face additional tariffs of 10%.


Scoop
5 hours ago
- Scoop
How Tech Can Help Turn The Mental Health Tide (Affordably) For SMBs
Press Release – Employment Hero Solving mental health at work isnt about throwing money at the problem – its about designing systems that meet people where they are at and that scale as they grow. When it comes to workplace mental health, the question isn't 'Should we care?' but rather 'How can we afford not to?' Unfortunately, burnout has become business as usual. A 2024 Employment Hero survey f ound 61% of Kiwi workers had experienced burnout in the past three months. That number jumps to 70% for Gen Z, driven largely by financial pressure and unrelenting workload. On the Clearhead platform, 77% of users cite work demands as their top source of mental health strain. This isn't a 'nice to solve' problem; it's a national issue that affects productivity and for small and medium-sized businesses (SMBs), it's a particularly tough one. The old EAP model isn't working Traditionally, the go-to solution for workplace mental health has been Employee Assistance Programmes (EAPs). But the cracks are starting to show. These programmes were built around a one-employer, one-contract model often with in-person counselling as the default. That means long lead times, location limits and high fixed costs for services that might be barely used. The recent spate of large, well-resourced companies canning their traditional EAPs is testament to the need for a better solution. If multinationals like Xero, who recently ceased its EAP for 400,000+ small businesses, cannot sustain such a program, what hope do smaller businesses have? SMBs today often find themselves forced to choose between compliance tools, payroll platforms and wellbeing support – which is a trade-off no business should have to make. In a world where burnout is rising and budgets are tight, we need a new, fit-for-purpose model. Pooled, digital, and scalable That's exactly why Employment Hero partnered with Clearhead – to help build a modern mental health model that actually works for SMBs. Here's how it's different: It's digital: Employees can access therapy, resources and coaching from anywhere, anytime without waiting for a phone call back. It's pooled: Costs are spread across thousands of Employment Hero customers, lowering the barrier to entry for smaller businesses. It's integrated: Because the service is bundled into their core HR platform, support is available without a separate contract or platform and associated costs to manage. It's always on: Employees don't have to go through a manager or HR rep to get help as they can book directly and confidentially through the Clearhead platform. This isn't a token wellness add-on; it's a new way of thinking when it comes to how workplace mental health support is delivered – affordable, accessible and scalable. Real-world impact Solving mental health at work isn't about throwing money at the problem – it's about designing systems that meet people where they are at and that scale as they grow. Since launching, the two companies have seen early signs of success. Businesses that previously couldn't justify a standalone EAP now have support built into the system. Employees are engaging directly and HR leaders are reporting better visibility into wellbeing trends and less admin. Where to from here? As burnout continues to rise – pooled, tech-enabled mental health support is part of the long-term solution. It doesn't replace empathy, culture or good leadership but it does make help more accessible, particularly for the tens of thousands of Kiwi businesses that need more support but have been priced out until now. Because when mental health becomes a shared priority, everyone wins.