Slowing NZ economy not likely to crash

A new report suggests New Zealand’s growth may be easing but it is still at a low risk of recession over the coming year.

The report by the NZ Institute of Economic Research says all the signs point to the economy continuing to grow. But the country remained vulnerable to world events and if the worst happened, New Zealand had some tools to combat the effects.

‘‘New Zealand’s economy is slowing, and indicators are mixed as to whether a recession is on the way over the coming year, but on balance we see little cause for concern that a recession will strike New Zealand in 2020,’’ Christina Leung, NZIER’s principal economist, said.

The economy has been growing for 81⁄2 years, the longest stretch of growth since 1947 when quarterly growth records began.

However, this week the Government announced it was spending an extra $12 billion on infrastructure over the next four years. It followed a Treasury forecast of 2.2 per cent economic growth next year, revised down from 3 per cent in May.

Leung said timing was ‘‘everything’’ when it came to using levers to combat recession.

Looking at business confidence, activity, unemployment and the yield curve, all indicators pointed to the economy, on balance, continuing to grow next year. Some economists believed there was a heightened risk of recession in the United States mid-2020 but New Zealand did not tend to follow the US ‘‘yield curve’’ formula.

Further, its major trading partners were all looking at economic growth of about 3 per cent next year, which would support exports. Leung said business confidence data suggested there could be two consecutive quarters with small declines in activity – one definition of a recession – but the economy was coming off a strong run.

If the global situation changed, she said, New Zealand had leverage in its monetary and fiscal policy to reduce the risk of recession or at least its impact. In that regard, she noted calls from the Reserve Bank governor Adrian Orr for the Government to loosen the purse strings, and also from the OECD for governments to take a stronger hand in stimulating their economies.

Leung said the Government has been prudent and focused on reducing debt but its surpluses meant it had the scope to increase quality spending if the economy continued to slow.

A slowdown was generally a matter of when rather than if, Leung said.