Could weight loss drugs transform the economy?

0:00Welcome to the economy of everything podcast brought to you by CMC markets. So, Liam, you went along to an event last week and you heard about something that has sparked a lot of conversation around the office. Yeah, look, I mean, everybody's talking about these new weight loss drugs, but what I was surprised by was hearing a very senior business leader get up and talk to the crowd and make the point that he thought that it's going to be bigger than AI. Well, and there's no shortage of conversations about AI, right? It's almost to the point of getting getting, you know, we're overwhelmed with conversations about what AI is doing. These GLP1 drugs that are the, you know, I guess it's the EZMPIC and we go V and so 18% of Americans, according to some research we've seen, are on these and it's transforming the cost of health care

1:07and the food markets and all these things in a way that is now being talked about as being economically transformational. Yeah, so we've seen this report out of Goldman Sachs, right, that it could boost the US economy by as much as 1% equivalent to 360 billion dollars a year US dollars we're talking. So that's, you know, even more New Zealand dollars. So it's quite a lot, you know, how I guess how does it actually boost the economy? I guess it's the kind of, you know, well at the moment, what do you think about the discussions in New Zealand about the fiscal time bond, the idea that we're just not going to be able to afford a aging population to pay for the aging population, which is, and if you change the equation on health care massively, New Zealand is like up there in the ranks of most obese countries in the world, it's a problem through most of the developed world that our diets have been so rich for the last 30, 40, 50 years that we've accumulated weight into older age, which is a dangerous time to be big, you know, that you've got

2:13type 2 diabetes, but all sorts of other measures. And so suddenly at the moment, I think those reports are just doing the economics based on the share gain that they can see coming out of the cost of health care, and also potentially, I guess productivity gains about people being able to work longer. Yeah, like I guess it's talking about people having fewer sick days, being able to work more, like a lot of these people maybe their health is so poor that they can't work at all. So, you know, if they're getting to the point where they can work, that's, you know, going to increase the percentage of people in the workforce, you know, and I guess if you're healthier for longer, you know, you're potentially able to work for longer as well, you know, and that's going to, you know, feed all into the economy, and you know, really give that economic boost. And this is what they're talking about happening now in America. So, you know, the argument for it being, I don't know if I buy it, is being as big as AI because that's got a whole bunch of other issues,

3:16but it's happening right now whereas, you know, you're talking about is AI going to deliver productivity, it's being moved into some supply chains, it's helping people with research and things. Already with those numbers in the US, it's a serious enough that we're seeing fast food chains, like Donald's has talked about it in its earnings calls. They're looking at revolution in the way that, you know, fast food works, restaurants work, and even grocery, you know, supermarkets are going to have to cater to what I think, I don't know, an expert in this, but I think it is again that shift to more protein, probably more focused, small portions, which actually when you're looking at takeaways in the way that a lot of American shop and modern shopping is all about how you package things, and possibly isn't that much less profitable for some of these companies, for people who are, you know, who want convenience, and there are a lot of times these food companies are selling convenience, so they're looking at ways to keep making money, but to service these people who, I guess, are

4:20eating like just a couple of small high protein meals a day. Yeah, I mean, I guess there's going to be some sectors that's hard for, you know, the likes of fast food companies, you know, a lot of what they sell is fries and burgers, lots of bread, lots of things that, you know, it's right, my whole thing about the fried chicken has just got crispier and crispier over the years, and while that is delicious, it is also a way for the companies to sell a lot of fried bread crumbs to people, which is very cheap and gradient, and so, you know, and probably make everything a lot less healthy around the chicken that we eat. Yeah, so I mean, I guess that's something they're looking at fast food companies, McDonald's, maybe they're looking at how to promote things that are protein focused. I do remember, didn't KFC or something do some double down burger work, which was basically made out of two meat-to-chicken patties or what? Yeah, well, they do. They still do. Yeah, yeah, yeah, I look at it and then I think, no, I'm not going to do it. But yeah, so, and this is, so it's huge in America to the point that it is, there are people in New

5:22Zealand paying attention to it. In Australia and New Zealand, I think the numbers are a lot smaller, like I heard maybe 3% of Australians on it, maybe one or two in New Zealand. Yeah, the take-up here is still low, right? It's expensive, I think it's not far back funded. It's not funded, yeah, that's a major barrier. And obviously, you know, I don't think it's available in the pool form here. Yeah, you have to inject it. So that's a barrier. Maybe not for people with diabetes who are used to doing insulin and things, but for the average person, still though, you know, there is, this is early phase and I think the pill is expected to be, you know, there soon enough in widely used. And we will see the cost come down. Even if you look out 10 years, you're getting into territory where the patent starts to fall off because it's been around for a while. And then you'll see it mass produced and generic versions. And suddenly, it's, it's just more available in way cheaper for our older years. I don't know. Would you get on it? I, I, I, I, I, I've certainly done

6:25those kind of keto diets and I might do them again where I focus on protein and try and shift a little bit of stubborn weight so I can keep running in things. I don't, what I don't like about the GLP1 thing is at the moment they talk about sort of, you know, it affects the dopamine levels in your brain. It stops you craving food in a way that some people say removes some of the joy of it. So if you love looking forward to a delicious meal, maybe it takes, takes away that anticipation, which is good. If you're, if you're sort of crowded with food noise and people talk about being, you know, food addicts, I think we're all food addicts to some extent. Well, I mean, it's kind of have to be, like, quite a bit of life. But it's that bit about eating beyond being full because you're just enjoying it so much you want to keep enjoying it. So you need another helping or you have dessert when you don't need it. And I guess it takes out a way. Clearly though, there are people where it's going to be a health choice that just makes, makes a lot of sense because, you know, just it sort of enforces some discipline on you.

7:28Yeah, so I mean, yeah, I hope they kind of next generation maybe can get around that a bit. There's been some issues with muscle loss as well. Yeah, I mean, and that's part of the protein push isn't it? And actually, while we don't have high take-up possibly of the medication here, our New Zealand exporters are benefiting from it already, right? Well, that's the other plus. So already, even before you get to the GLP ones, I guess there's been a shift to much higher protein consumption in the developed world because we've all read research about how proteins great for us and carbs are bad. And so that's, you know, we see that paying off in the last couple of years, well, the bad news is when you go and buy, try to buy a stake at the supermarket, but the good news is for our beef exporters, our lamb exporters and our dairy. And so, yeah, it was interesting to see NZTE has done some research on this already and as advising exporters in New Zealand to look at their whole profile of what they export and consider it in this framework or with the slend's around

8:33how these GLP ones are going to change the world. But it's a double, you know, it's a double win for New Zealand in a lot of ways because we are a protein-producing country. If it keeps prices up, if it helps us save money on the other side as our population ages, it could actually be quite transformational for, you know, the economy long term. I mean, I wouldn't be brave enough to take all that risk out of the fiscal projections yet, but you've got to wonder where the treasure dairy would look at that when they look at, you know, and do the costings of how expensive it is to look after everybody in the future. If you could say obesity levels will be down by 30, 40, 50% may be more based on what's in America. That's going to happen in Patron Pact, right? Yeah. Yeah. And I think, you know, regards to the dairy sector in Fonterri, you know, typically, you know, we would see cycles. So, you know, this sort of the dairy, high-dairy price would come and then go because, you know, once they see that high demand,

9:35there's more, that's, I mean, like, small production and then obviously that the price falls, but that hasn't happened. And we now, I think, headed for the third year in a row of strong dairy payouts to our farmers. Which has got to flow through to the city, surely. I'm like, please, come on. Come on, a third year in a row, you know, it's starting to get a bit unprecedented. It's be strange not to have a nationwide economic boom with three years of high commodity prices. So, you know, touch wood could be, could be finally starting to lift the whole country. Here's hoping. But yeah, and as a long-term trend, you know, that is, that is something to be quite positive about anyway. Yeah, definitely. Welcome back to the economy of everything but you with CMC markets. We had the big monetary policy statement last week, the rate went up as expected. But it was, it was called a slightly dovish response from the reserve bank regardless because they didn't sort of take an aggressive

10:39stance on future hikes. What did you make of it? And then just tell us where you think they should be going. Well, I mean, it was interesting, wasn't it? I think it was a lot less aggressive than what, you know, maybe some were expecting, you know, some of the economists had called for, you know, more hikes to come another one in October, another one in December. But I guess it's kind of looking more like we might just see one more this year in December. It may be another one next year, depending on how things go. I mean, I think, I think that's quite good in terms of, you know, helping to keep that stimulation there for the economy. We need that, especially in Auckland, in Wellington and lots of places. But you, Liam, you've found some research that Kiwi Bank has done, sort of looking at how, you know, maybe it'd be helpful if we had different cash rates and different parts of the country. Yeah, I thought that was interesting. So Kiwi Bank put out a regional scorecard type thing last week. And of course, as you'd expect, you know, a targo Canterbury leading

11:41the way, Auckland and Wellington, struggling. And so what Jared Curran's team have done there is they've gone through and looked at what they thought, if you had a different central bank for every part of New Zealand, what the numbers should be. And so if you look south, he says to Canterbury, a targo in Southland, where things are booming, you would probably set the cash rate at, it would already be at 3 to 3.25%, which is maybe where the whole country is heading according to the the current rate track. And that would be a neutral setting. So that would be, you know, it's important to remember that 2.75, we're at right now, even though it's gone up, is still considered stimulatory to the economy. Auckland and the Waikato in Hamilton, you know, I guess he's saying still required 2.5 to 2.75, so potentially even lower than where we are. And then you get to some places that are really struggling, Wellington, Northland, Gisborne, Bay, Plenty, Hawkes Bay, and Jared Curr would still have it at 2.25, because those are the parts that really need to boost.

12:48Overall that, I would say that Jared has also been quite strong on saying that he thinks that it might have been better to leave the cash rate around that level for longer anyway, just stimulate the whole country at the risk of, I guess, things getting inflationary around the South. I mean, it sounds like a nice idea, but could you imagine telling that to people in Christchurch, you guys are doing well, so I think that you're going to need to pay another couple of percent more on your mortgage than people in other parts of the country, because they're struggling. Yeah, I don't know if that would go down to a way. It would be strange, and it would do strange things to currency and banking, you'd have to have a bank. People would find ways around us. Yeah, it actually quite literally couldn't be done in the current setup, and even when you think about the European Union, they live with a European Central Bank call. British have always stayed outside that even when they were in Europe. America is a big place, they have to live with the feds call, despite the fact they have representation from all the regions. You could get into that, I

13:48suppose, the way the US Fed works is to have governors from all around the US, you could have a whole bunch of regional governors advocating for the cash rate for their region. I guess we're a small place, look, 5 million people, unfortunately, you just have to live with it as the nature of our banking sector and the way our monetary system works. I mean, obviously, that cash rate increased a tract a bit of flat last week, didn't it? From those who think it's going to be rough on the economy in terms of young workers wanting out there. The unemployment side of things, which is that lagging indicator. We saw that from the unions, but the Reserve Bank can and does fall back on its mandate, which is a sole mandate on inflation right now. Labour wants to bring unemployment back into it, and that could change the equations slightly. I think what we saw from the Reserve Bank suggest

14:49that they have been listening to the commentary and the stories from all different sectors, because the markets were way more aggressive. If they'd stuck with the market call, on our way to 3.25, it would be hikes at the next two. That looks less likely now. Maybe that means they're a bit more relaxed about what's happening internationally, even since then. Nothing's going great in the geopolitical world of the Australian whole moves. I think the price of oil's back up, nearly getting to $100 USD about 97 to $200 USD. It seems to be in a range and something seems to give any time it gets near a hundred. You probably put odds on some sort of messaging from the White House in the next few days now we're moving to another phase of talks or something just to shift it. As long as it's bouncing between $80 and $100, it seems like the world price that in and can cope with it.

15:54So it's possible that inflation has peaked in New Zealand, but there's certainly a case that people are still feeling cost of living because whatever it is, even if you strip out the oil shock, you've got 2.9%, you could say it's inside the band, but that's on top of all that increase that we've had over the past five or six years. In the Governor did still make it clear that missing piece of the puzzle is that kind of consumer spending, that confidence to spend. Absolutely. And talking about how it does seem like there is a bit more disposable money around. It's interesting. Going into savings. Yeah, she was quite explicit. They must have had some research there that they had seen that the disposable income measures that they look at were actually up, but people weren't spending it, they were saving it, which means that there probably is some recovery there. We're seeing it sort of through from the export end, the southern regional end, and that money is being saved

16:56because people are nervous about their jobs. And until that sort of gives, but if you start to see unemployment track down, even if it's not that far down, it's just the direction of travel. Yeah, it's more the fact that it's not going up anymore if it's starting to tilt back, you know, come back a bit, it's just that sort of that signal isn't it that maybe people don't need to hold on to their savings and maybe they can spend a bit more. I mean, I think interesting Christmas might be interesting this time around to see whether, you know, people are openly walleted much more, or whether they keep them closed. Yeah, I mean, we could be into, you know, the talk of recovery has come back. I've been sort of nervous because we've promised it, you know, but the economists do seem to have got more optimistic again. It's all sort of predicated on not having another major geopolitical shock to prices or a big stock market crash. The other one they were, I've seen warned about, and potentially an El Nino hitting New Zealand's export production. So there's always risks, but if those things don't become sort of big blacks

17:59one events, then it looks like we're on track for a sort of slow, gradual recovery bedding in. And that would gather momentum. I still think it's a few months away from the average person sort of feeling it. I don't think you're going to see wages get past inflation in a hurry. I think that's probably six months away. So I'm sticking with my call from a couple of months ago that the recovery isn't coming in time to sort of, for the election, to sort of, for national to rely on, they're going to have to sell the story of recovery out the other side of the election, which is of course hard work. Definitely. And the election's creeping up isn't it? No, Vembers, not that far away. No, I mean, I think we don't get that much more data. In fact, I think we've got a GDP coming up soon. And that'll be the last one we get before we go into the election. Yeah. And that's probably not going to be a good one. So that's not going to help this government's fortunes. But we will get another GDP figure before Christmas. And that could be

19:04something that's a bit more positive. All right. Well, let's get into that. We've got second quarter GDP coming up. We could really get into it next week because we've got time. But let's just touch on what's expected after the break. Sounds good. Welcome back to the economy of everything. Thanks to CMC markets. So, Liam, we've got some GDP data coming out next week. What can we expect? Well, this is the quarter that is going to suck, right? So this is the one that really cops the oil shock and the consumers putting their wallets away. So it's the gen quarter. Yeah. It's a lack of confidence. So it's the one that I think economists think we'll go backwards. The economy will probably shrink. And so that's recession area. Recession would require two quarters. But we had a strong quarter before the around conflict 0.8% growth in the March quarter. That's pretty good. We thought we were we were we were we were waiting for. Oh, we were away. Yeah, that was the recovery we were waiting for.

20:05And so going backwards in the second quarter was quite a blow. We sort of assumed that. I've seen just some early research from BNZ where they they've had a 0.2 negative 0.2 penciled in for the quarter. They're sticking with that and they're going to look at a bit more data this week before they make their full call. But they do say that there's a sort of an upside risk to that which suggests that it's possible. It comes in flat or 0.1% up which would be you know the reserve bank that's what they were predicting. You know last week that it would be flat in the gen quarter. And you'd probably take that. That's you know that's when you look at how shocking it was when the oil prices spiked and the fear that everyone had about diesel running out and things getting through flat in that quarter is sort of like a win. It's sort of and then you know hopefully means that it's easier for momentum to build again in the third quarter which economists do think that's happening. They're talking again about recovery.

21:07Yeah I mean the reserve bank's penciled in 0.5% growth in the September quarter. So you know not as strong as that first quarter but still you know not too shabby. Yeah I mean when you're talking about GDP growth I think people think of annual growth and 3% in above is boom territory really you know we're not in a position our economy is not structured well enough to handle much more growth than that without generating a lot of inflation. Because we guess we could get up closer maybe 1.5 somewhere between 1.5 and 2 this year which you know compared to previous years probably you know it's not too bad. Yeah I think realistically you know there isn't some formula that's going to restructure our economy and allow us to grow it 4%. The reserve bank has to squash that because it causes inflation. So what we need is a long steady period of like growth at about 2% which is sort of just near capacity economists talk about the capacity of economies to grow

22:07and once you get above capacity it causes inflation. So but let's have it for like two three years like we had like seven or eight years of around 2% growth and we didn't like it because it was at the time pre-COVID everyone was like no it's low growth but it was stable and steady and you could plan a you know forward investment around it and I think businesses would just really jump it that now and hopefully it would it would generate some you know real opportunity to invest. Yeah and just a bit more confidence right. Well it's all relative isn't it it's relative to how lousy it's been I think getting back to a steady stable low growth for an extended period would would just be you know just just so celebrated that you know and we didn't we'd appreciate a lot more than we did I think at this point. So what's it going to take to get that though because it does seem like you know New Zealand doesn't have a lot of control about these major political you know

23:09well I mean it's going on around the world. It's hopefully nothing major going wrong but you know as we talked about at the start you know that protein boom strong exports coming in I guess it needs the immigration story to keep turning so that we've got a bit more of a net positive gain just to sort of help help lift you know give a little bit of life to the property and construction sector in Auckland and you know we'll see you know Auckland consumers feeling a bit more confident that creates a bit of buzz in itself and you know people going out suddenly it's the mojo that Christopher Luxon talked about in the last election campaign I doubt he's talking about it much this time actually. I don't think I've heard a mention that word. Yeah yeah because that was his original promise was to bring the mojo back and I I think I look maybe you go down to Christy it's just playing a mojo down there economic mojo I don't know how much actual mojo there are. I don't know well I think that's about all we've got time for this week so thanks

24:10for joining us this week thanks to CMC markets and we'll catch you here next week.