A worse-than-expected economic growth result for the final quarter of last year has elicited reassurances from Labour, and dire predictions from National.
The 0.6 percent GDP contraction for the three months ended December compared to wider expectations of a 0.2 percent drop, and the Reserve Bank’s 0.7 percent growth forecast.
Finance Minister Grant Robertson said the fall was “a little larger than what had been forecast”.
“It does come off the back of two very good quarters and when you look at the annual numbers we’re up over 2 percent, and that’s better than most of the countries we compare ourselves to,” he said.
His National Party counterpart Nicola Willis was much more pessimistic.
“A lot worse than expected,” she said. “The Reserve Bank had said that we would grow in the last few months of last year, instead New Zealand shrank. It is very worrying because it means there are cracks opening up in our economy.
National’s Finance Spokesperson Nicola Willis Photo: RNZ / Angus Dreaver
“Many New Zealanders are already in a very bad place, they’re being crushed by the cost of living and rising interest rates and this data tells us there’s worse times ahead.”
Economists, the RBNZ, and Treasury have all predicted a “short and shallow” recession in late 2023.
Willis said the pain for struggling New Zealanders would last longer, however.
“What is particularly concerning is that we have now had inflation at very high levels for almost two years. This isn’t a short blip, this is a prolonged crisis and we haven’t seen the government take the action we would expect, to address it.”
She blamed Robertson’s approach.
“His judgement was flawed, he signed off on projects that the new prime minister now admits were wasteful, we have an overheated economy that shrank in the last few months. Things are in a very bad way.”
But Robertson suggested the economic pain was expected, and a faster and deeper hit now could also mean a faster easing of interest rate hikes.
“The forecast from the Reserve Bank and the Treasury going back to last year was that we would see a short, sharp recession in 2023. Clearly the softening in the economy towards the end of last year’s what’s seen this result. We won’t know the actual numbers until this quarter’s GDP comes out.
“I do note that some of the economists who have commented since the result today have lowered their forecast for the next interest rate hike.”
He said today’s result would not change anything for him in terms of policy.
“No. I mean we obviously said last year that we would make sure from a fiscal point of view we would come back to a more stable position.
“Central government consumption’s actually down by about 2.8 percent in this quarter, so we’re aware of the need to strike a balance here between making sure that we’ve got our fiscal policy right but also continuing to invest in the services that New Zealanders need.”
The results out today do not reflect recent shocks in the US economy with the collapse of Silicon Valley Bank, and subsequent concerns of a contagion effect which have tanked shares in Swiss bank Credit Suisse after it disclosed “material weakness” in its accounting controls.
Robertson said a careful eye was being kept on financial problems abroad.
“New Zealand’s banking system is robust and resilient but clearly when you have global events like this it can have an impact on the New Zealand economy so we’re watching it closely,” he said.
Willis said it showed why more work was needed.
“I think the emerging instability in global financial markets underscores the need to strengthen the New Zealand economy, and I think there will be many people who will reflect on how unwise it was for Grant Robertson last year in his budget to go on their biggest spending spree in New Zealand history.”
SOURCE RNZ
