Speaking to investment clients of Forsyth Barr in Dunedin last week, the prominent economist fully expects to be in a global recession within two years.
This is on the back of poor economic fundamentals in Europe and China and issues such as the trade row between China and the United States.
The silver lining is that New Zealand could weather it better than most, the former ANZ chief economist says.
He would like to see more clarity on the Government's fiscal plan.
"Normally when the global economy goes pear-shaped, governments borrow a lot of money and they run expansionary fiscal policy by building infrastructure to try to stoke demand."
However, he said the New Zealand Government had a "hit" plan, not a growth plan.
"The Government of the day are dishing out economic hits without the economic spinoff opportunities.
"Accepting there is a strong social agenda, you still need to marry things up with opportunities on the other side," he said.
"The New Zealand economy at the moment has slowed from 4% to 2.1% and there are nuances that things are slowing even further, potentially headed to 1.5% in the next six months.
"That's a big step down in real terms."
"In a normal environment we'd know how to fix this," he said.
"But these aren't `normal' economic times, because populism is demanding change and New Zealand isn't immune from that.
"We know that around the globe that climate change and housing affordability are major issues."
People want another version of capitalism, which is the social justice oriented version.
"While we aren't 100% sure what that will look like just yet, we do know it does demand big changes."
He said the enduring low interest rate environment also presented a global mindset change.
There were now $17trillion worth of government bonds worldwide which have negative yield.
"The yield on a German 10-year bond is -0.6%, but people are still investing in negative-yielding bonds in Germany and Japan, because they don't know what else to do with their money."
He said lower interest rates were good for valuations and, on the face of it, made a really good investment climate to put money to work, because it is cheap.
"If you're a corporate and you've got a good balance sheet, a low interest rate environment is like Christmas."
Corporates, however, faced another major problem and that was access to skilled labour, he said.
"Talk to any firm, skills shortages are their greatest economic problem.
The national unemployment level is 3.9% and it is 3% in Otago.
"Yet more people are signing up for job seeker benefit so that tells you something about policy and willingness to work."
What is also good for borrowers is not necessarily great for investors, he said.
"You can walk into the bank and get 2.7% for a six-month term deposit.
"Once you've paid tax and accounted for inflation, you are getting zero, so it's created challenges as to what to do with your money."
Mr Bagrie said the financial community now needed to "step up" over the coming years.
"What worries me at these levels is that we will get some `interesting product' on the market, reminiscent of the finance companies in 2005-07.
"So we'll start seeing increasingly risky products out there that are, quite simply, just not fit for purpose."
He said there was "nothing wrong with chasing high return", as long as it was a risk-adjusted return.
Mr Bagrie said in that kind of impending climate, investors needed to ensure they were engaged with reputable organisations that were going to provide "good, realistic advice".
He said while there were challenges, New Zealand was in a "reasonable place" to ride it out.
"We don't have the same issues we've had historically. We have broad-based growth across regions like Otago."
He believes the Government needs to spend more money and deliver around an economic plan.
"If we get that story right, then New Zealand could do well in the coming years."
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Comments
Populism is nationalism, always bad for business.
Still quite simplistic view pointing. What about allowing people CPI on their money investment before taxing and encourage a place for people to use their savings in a win win situation. The present is a win to the borrower and loose relatively to the saver/lender. The borrower picks up inflation and no tax - that is why they win. It also, assumes corporates spend wisely but look at Fonterra as an example that they don't necessarily. Cheap money makes for cheap decision making, if the borrowing requires a higher NPV on return, more thought is put into decisions and whether it is the best decision.