By Ian Verrender, ABC chief business correspondent
Photo: RNZ
Analysis - You have to hand it to the Kiwis.
For such a tiny nation, stuck at the bottom of the South Pacific, it's a country that punches well above its weight.
Take last Saturday night, for example, when the All Blacks yet again walloped the Wallabies in Wellington, keeping the elusive Bledisloe Cup locked away in the NZRU trophy cabinet.
For Australia, it's been a 22-year drought.
It's not just sport. A range of musicians, writers, filmmakers, artists and actors from the Land of the Long White Cloud strut the world stage.
But there's another, perhaps more arcane, area where New Zealand has made the rest of the world sit up and take notice.
When it comes to central banks, the Reserve Bank of New Zealand (RBNZ) is something of a trailblazer. And a radical one at that.
Back in the 1990s, it was the first central bank to target inflation as a way of controlling the economy and during this latest inflation outbreak, it was the first central bank to raise interest rates.
It has since gone on to push its official cash rate to a 5.5 percent peak.
Right now, all eyes are on our Kiwi cousins to see what happens next.
Why? Just four months ago, RBNZ supremo Adrian Orr was threatening to raise interest rates again if inflation refused to decelerate into the bank's comfort zone quickly enough.
That call was altered at the very next meeting and by August, the bank suddenly had to begin cutting as the economy plunged into recession.
The sudden turnaround took most pundits by surprise, given the aggressive stance the Wellington-based monetary overlords had adopted throughout this inflation episode.
Many global counterparts have begun asking: Could we be next?
Lessons from New Zealand's inflationary battle
Given New Zealand has been in recession for most of the past two years, the surprise was that the RBNZ was so shocked by the latest sudden downturn.
When it cut rates in August with a fairly dire warning about the economic outlook, the currency took a dive as traders took fright at what might be around the corner.
They now expect a succession of rate cuts in the months ahead.
Since the December quarter of 2022, New Zealand has had just one-quarter of growth, and that was back in the June quarter of last year.
To many observers, the recession hasn't been one that, to misquote Keating, New Zealand had to have.
While Michele Bullock and her predecessor Phil Lowe constantly maintained their aim was to keep as many employed as possible - and hence limit rate hikes - the Kiwis have gone on an all-out war against price inflation.
The philosophy on the other side of The Ditch has been that inflation is the enemy and recessions simply are a by-product of the battle.
Economist Brian Easton explains the downturn has been partly caused by weak export performance as China's economy stalled.
But much of the pain is self-inflicted.
"Another factor in the decline has been that the Reserve Bank has consciously engineered a contraction to restrain inflationary pressures, using higher interest rates which cut back investment, thereby weakening the economy and making it harder to raise prices and wages," he said.
From a 0.25 per cent nadir during the pandemic, the RBNZ propelled the official cash rate to 5.5 per cent.
It sparked a congratulatory wave of admiration from many senior Australian economists, who despaired that the Reserve Bank of Australia lacked such courage.
Even now, they point to New Zealand's inflation decline, which was down to 3.3 per cent in the June quarter from a 7.2 per cent peak, as evidence that the Kiwis got it right.
Here, our most recent quarterly inflation reading was stuck at 3.8 per cent, although our latest monthly number came in well below that at 2.7 per cent.
At what cost?
Recessions are easier to engineer than to fix.
Lose your job when you're in your mid-50s for any length of time and it's a tough haul back into the workforce.
For school kids or anyone graduating from tertiary education, a couple of gap years between study and a chosen profession disqualifies many.
After the bruising experience of the 1990s recession, when it took a full decade to return to the pre-downturn jobless level, the RBA has been conscious of the brute power it wields with interest rate hikes.
The past two years have been intensely difficult for households and governments with seemingly no control over the cost-of-living crisis.
Inflation coupled with soft wage growth saw real incomes plummet here and in New Zealand.
That was compounded by the fastest rate hikes in decades, which pushed heavily indebted households to the brink.
It was bad enough in Australia, with rates rising to 4.35 per cent, but the Kiwis were forced to endure official rates of 5.5 per cent.
Even with the recent cut, and more to come, they will be paying more than in Australia for quite some time.
But there is a bigger, more ominous change afoot.
From cost of living, a more existential crisis is in the wings: earning a living.
The great Kiwi evacuation
While the RBNZ may be gearing up to celebrate its impending victory over inflation, it could well prove hollow.
Remarkably, the Kiwi unemployment rate remained incredibly low until the beginning of this year, before starting to spike.
From 4 percent in the December quarter last year, it hit 4.6 percent in the June quarter and there are fears it will continue to rise strongly from here.
Even so, there is a good chance the numbers are skewed.
Unlike most countries, New Zealanders have access to a well-worn escape path whenever the RBNZ goes crazy. It's just a 2-hour flight across the Tasman to Australia.
For the first time in more than a decade, the country's population is shrinking as departing Kiwis outnumber new arrivals.
In the 12 months to March, 78,200 New Zealand citizens migrated to another country, leaving a net loss of 52,500.
"As Stats NZ notes with a degree of understatement, this exceeds the previous record of 72,400 departures and net loss of 44,400 citizens in the year to February 2012," said Professor Paul Spoonley from Massey University.
It is a trend that appears to be accelerating, reigniting fears from decades past of a brain drain, with highly qualified Kiwis waving goodbye in record numbers as the economy tanks, for a better life in Australia.
Even before this latest evacuation, New Zealanders made up the fourth-biggest migrant community in Australia.
Government records now indicate almost 670,000 Australian residents were New Zealand-born, representing around 15 percent of the New Zealand population.
Let's hope a few of them can play rugby.
- ABC