by Nick Stewart (CEO and Financial Adviser at Stewart Group)

Finally… Some good inflation-related news following the latest Stats NZ announcement of inflation at 6.7%. This is down from 7.2% and might signal a slowdown from the ruthless inflationary pace we’ve seen the past few years.

This might make some sigh with relief – but we’re not out of the woods yet. Inflation is still at levels unseen since the 1990s, and the biggest driver of the most recent rise was food – followed by other essentials like housing and household utilities.[i]

While we’re starting to head in the right direction, Kiwi wallets are likely to be hurting for a good while yet. Inflation, while lower, is still high.

I mentioned it in one of my first articles for 2023; this year’s dirty word is ‘Recession’. Generally in a recession (defined as two or more consecutive quarters of negative economic growth), we see an increase in unemployment, a drop in the stock market, and a dip in the housing market.

We may already be in a recession. But we won’t know for sure until we get the next quarter data mid-year. By then we’ll already be six months in.

ASB came out earlier this month and predicted a 2% contraction to gross domestic product (GDP) by early 2024, which is over half the size seen during the 2008/09 global financial crisis (GFC). They’re also calling a final OCR increase from RBNZ in May, with a gradual pulling down of rates from 2024.[ii]

We’re also seeing headlines referencing another global recession, with differing opinions on whether or not this is inevitable after the instability of the past few years. The International Money Fund (IMF) just released a report picking a soft landing rather than a recession – but the details of the report itself still indicate a slow, painful grind in future if predictions are accurate.[iii]

The upside is, this is all happening a little earlier than we might have otherwise expected. The bad new is that the only way out is through, and we’ve got a while to go yet before we can really relax.

What might this mean for investors?

It’s impossible to predict the future. Markets don’t wait for official announcements and typically operate ahead of economic reports. Your best bet is to hold a globally diversified, evidence-pased portfolio, and stay in your seat to capture the recovery when it comes.

A lesson from the GFC for investors is to hang tight despite what’s happening in markets, economies, and with banks. Many who tried to out-manouvre the markets by pulling their funds when the clouds started to gather on the horizon, found themselves with less as they locked in what had been merely paper losses.

Portfolios should be built with a variety of asset classes to support long term goals and plans. They are rebalanced based on market targets or weighting changes. They should take into account various scenarios to ensure there is no need to panic and if someone is drawing down, spending is accounted for in the short term.

This is where a trusted fiduciary can come into play by creating a financial roadmap based on evidence, and offering unbiased advice to help you get your financial house in order – regardless of what the headlines are saying about the markets.

Similarly, there’s no need to take knee-jerk actions with your finances outside of investment in light of a recession (should it be confirmed). Kiwis have been living with high costs and hard times for a while now, exacerbated by global and local events. It’s going to feel painful, but we’ve just got to keep doing what we’re doing – funnelling money towards the essentials, avoiding or paying down unsecured debt where you can, and constantly shopping around for better deals on your regular expenditures like utilities and services.

While it’s not possible to predict the future, you can plan to accommodate its ups and downs – and the sooner you get started, the better. If you’re after a second opinion or need some help demystifying your financial roadmap, getting in touch with a trusted fiduciary for a chat is always a good place to start.

• Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 303.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.stats.govt.nz/news/annual-inflation-6-7-percent#:~:text=The%20consumers%20price%20index%20increased,12%20months%20to%20December%202022.

[ii] https://www.asb.co.nz/content/dam/asb/documents/reports/quarterly-economic-forecasts/asb-forecast-update_apr23a.pdf

[iii] https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023