Cheer up, we’re not sliding into recession
GDP growth at 2.1 per cent — or even 1.9 per cent — still puts us ahead of the OECD average.
Cheer up.
New Zealand’s economy is not sliding into recession. Sure, it is sliding. According to a consensus of economists, things will probably get worse before they get better.
But not much worse. And not for much longer.
Then they are expected to get better — from about the start of next year by most estimates.
That’s the bit that gets missed in the more gloomy headlines.
Economists tend to keep a laserlike focus on the direction of travel. And for the past 18 months that direction has been downwards.
So that’s what they’ve been writing about
But almost universally they plot New Zealand’s GDP growth trajectory as a gentle trough, hitting bottom later this year or early next, then rising again.
And it’s always a growth trajectory. Nobody is predicting a recession.
As a yardstick let’s use forecasts by ANZ, one of the countries gloomiest research units this year.
That gloomy stance has made it one of the most accurate, the first to call that the Reserve Bank would need to start cutting rates again.
ANZ sees annual growth hitting bottom at 1.9 per cent early next year then rising back above 2 per cent as increased government spending and low interest rates finally start to flow through to consumers.
At no point in the next two years do they see unemployment rising above 4.5 per cent
That’s not to say that an external shock like a financial market crisis — or a natural disaster like drought or earthquake couldn’t knock us into recession.
That risk is always there.
But remember, these are the gloomiest forecasts from a pretty broad selection.
As Finance Minister Grant Robertson has been keen to point out, GDP growth at 2.1 per cent — or even 1.9 per cent — still puts us ahead of Australia, Canada, Japan, the UK, Europe or the OECD average.
Among that bunch we’re like, I don’t know, a rock star?
No! Not going there.
For the record the US is tracking at annual growth of 2.3 per cent. According to ANZ’s (admittedly long range) forecasts we’ll be back at that level by March 2021.
Others think we’ll bounce to 3 per cent by then, although that might require something (like a trade war resolution) to give the global economy a boost.
Still, in the past month we’ve had reports from the International Monetary Fund, and ratings agencies Moody’s and S&P telling us what good shape we’re in relatively speaking.
“We expect New Zealand’s economic growth to be solid over the medium term,” wrote S&P Global in its latest risk assessment of our banks.
“We consider the risks facing New Zealand’s financial system have stabilised, reflecting the slowdown of a rapid rate of increase in house prices and private sector debt.”
That’s a salient reminder that one of the big drivers of New Zealand’s rock star growth was an unhealthy artificial stimulant — the wealth effect caused by a property bubble.
So we’ve got slower, more solid growth. Is everybody happy? Nope.
When it comes to confidence — whether it’s the economy or sport, or anything for that matter — direction of travel seems to be a bigger influence on our perceptions than the reality of the here and now.
Humans just aren’t great at living in the moment.
We’re immediately nostalgic for the past and anxious about the future — that seems to be some kind of evolutionary trait which no amount of mindfulness or zen meditation can undo.
Over the next several months it looks like we’ll see stabilisation.
Increased government spending, monetary policy stimulus and a pretty healthy trade balance will battle with global uncertainty and the fallout from low business and consumer confidence.
It might feel like we’re stalled for a while. That might not feel great, even if we haven’t really stalled in such a bad place.
That neutral place will leave plenty of room for interpretation and
we’re already seeing a lively battle of economic narratives.
To his credit, National finance spokesman Paul Goldsmith has been wary of talking the economy down for political points.
He’s argues it could be doing better if there were more business-friendly policies in place. He might be right.
But that’s politics. The people who elected this government didn’t vote for GDP growth, they voted for more focus on social equity and welfare.
Some of them are disappointed that, for all his wellbeing talk, Robertson is still focused on the fiscal bottom line and maintaining GDP growth. I’m glad he is.
I think he does a pretty good job of balancing the competing demands of economic and social expectation.
But I think he’s struggling to win the battle of the economic narrative. Finance ministers only have so much sway.
If this government wants to wrestle back that narrative, its going to need the Prime Minister to swing in behind the story.
Jacinda Ardern has been distracted fighting internal political fires and now, this week, doing what she does well — representing New Zealand on the global stage.
If she still has star power then it is now needed back home to reassert the Government’s economic plan, to reassure on its execution and to remind New Zealanders that the outlook is not really so grim.