Jacinda Ardern and Grant Robertson were able to breathe a massive sigh of relief yesterday.
The figure for the June quarter GDP showed a fall of “only” 12.2 per cent.
Even though that is the biggest fall in New Zealand history and formally tips the country into recession, it could have been worse; much worse.
Treasury only on Wednesday had forecast the figure to be 16.0 per cent, and the trading bank economists had expected the figure to come in between 13 and 17.5 per cent.
National had privately hoped the figure would be much worse. Instead, it has left them with the difficult political challenge of persuading the country that the Government has mismanaged the economy.
However, the figure was not so good compared with other economies; most notably Australia, which was down by only 7.0 per cent. Judith Collins was happy to point that out.
June quarter GDP comparison
|China (People's Republic of)
Finance Minister Grant Robertson said yesterday he was happy for the comparison with Australia to be made.
“In a number of areas, we are faring very, very well,” he said.
“And that’s in spite of the fact that international tourism means twice as much to us as it does to Australia. (International tourism makes up 5.8% of NZ GDP but only 3% of Australia’s)
“If you compare unemployment, our peak is going to be significantly lower than Australia’s.
“We’re going to come out of this year with our debt a little lower than Australia’s and our growth and our rebound out of this will be we’ll be faster and quicker.”
Westpac economist, Michael Gordon, who has differed with Treasury over their projections saying they were too pessimistic, said the distinguishing factor in comparison with Australia was the stringency of the lockdown.
“Construction, retail, non-food manufacturing and recreational services all fared much worse in New Zealand than in Australia during the quarter,” he said.
“In other areas that were able to keep operating at Level 4 – such as agriculture, food manufacturing, professional services, finance and healthcare – New Zealand fared just as well or even better than Australia.”
But what was really important about yesterday’s figure for Robertson and Jacinda Ardern was that politically it would seem unlikely to inflict much damage on the Government.
Ardern knows from Labour’s research exactly which buttons to push when it comes to reacting to things like bad economic indicators.
“My question would be, what’s your measure of success,” she said.
“In a global pandemic, what do we measure success on.
“Success for me is saving people’s lives, supporting and saving people’s businesses and coming out the other side faster and quicker and with more activity.
“And that is what we’re seeing in New Zealand.”
The better GDP figure was not what National wanted to hear. Its whole strategy has been predicated on the figure being disastrously low and people turning to National because successive polls over the years have shown the electorate trusts them to manage the economy in a crisis.
And National’s Finance spokesperson, Paul Goldsmith, followed that script exactly when he offered his reaction to the GDP figures.
“On what we’ve seen today with the statistics is that the economic damage was recorded in three months, but the consequences will last for many, many years to come,” he said.
“And so we as a country are in a deep hole at the moment.
“And we need a really strong economic plan to get back on our feet and restore our prosperity.
“And that’s what we’re going to be talking about tomorrow with our fiscal plan.”
If National were implying that Labour was somehow responsible for the drop on GDP, Robertson wasn’t having any of it.
“There is no way that any political party can claim that there would not have been a recession in New Zealand during this period of time,” he said.
“This is a one in 100-year global economic shock.”
Labour also believes that the electorate won’t fall either for simplistic analysis or recovery scenarios.
A senior Labour source told POLITIK that they believe the electorate is now more sophisticated and thanks partly to the Beehive live streams during the Covid-19 Level Four lockdown, many people understand why the economy suffered damage and that they understood the debt that was incurred had gone to pay the wage subsidy and to support businesses.
Labour’s campaign yesterday was obviously designed to show that it had practical answers to the recession.
The Prime Minister and Robertson were in Palmerston North where they visited a building site which employed 11 apprentices under the Government’s apprenticeship boost scheme which can see employers get Government grants of up to $20,000 for each apprentice they hire.
But the difference between the Treasury projection on Wednesday and the actual outcome statistics yesterday underlines another problem facing the Government and that is the uncertainty about any of the figures and therefore the projections.
Robertson believes that Treasury’s projections were influenced by the fact they closed them off on August 21, and more data had come in since then.
There is another Economic and Fiscal Update to come this year, the half yearly version, which will appear in December and he believes it will show a sharp upturn.
“There’s no doubt that the September quarter will see us rebound significantly,” he said.
“The point being that this was our strategy.
And, you know, GDP is just one measure of the overall health and wellbeing of our country.
“The fact that we were able to get through this one in 100 years, shock with a very limited number of deaths compared to other countries shows we’ve done significantly better and on indicators like unemployment.”
Westpac economist Michael Gordon expects New Zealand’s GDP to rise by around 8.5% in the September quarter (held back somewhat by the renewed restrictions in August), and to have returned to within 5% of its pre-Covid trend by the end of the year.
“At that point, the shortfall will largely be due to the closure of the international borders, which will put a cap on the pace of recovery through 2021,” he said.
Kiwibank economist Jarrod Kerr is also expecting a big jump in the GDP figure for the quarter which will end on September 30. He is predicting 10 per cent.
“Activity that was halted during the lockdown, particularly across traditional services, was not necessarily cancelled activity but rather deferred,” he said.
“Kiwibank electronic transactional data show that spending in these areas has resumed since moving down the alert levels.
“It’s developments like these that support a strong third-quarter rebound in economic activity.”
There are, however, questions about the medium-term outlook – most notably on the housing market. Treasury is also picking a rebound there with prices rising by 7.4% in the year ended September 23 just before the 2023 election.
These rises raise the question as to whether there is a need to have another look at the Reserve Bank and its role in stimulating house price inflation through its flooding of the economy with cheap money.
“It’s really important to me that we maintain independent monetary policy,” said Robertson.
“That will always be a plank of what we believe.
“We’ve made some changes to the way the Reserve Bank operates, and we’ll keep working with them.
“One thing I would say is that monetary policy is evolving.
“Things that we used to think of as unconventional, like quantitative easing, are now commonplace around the world. So of course, we’ll continue to look at it.
“But I don’t have any plans for any major significant restructuring in that regard.”
In a way, the Government got a monkey off its back yesterday; the GDP drop was as bad as it is likely to get unless the whole country goes into Level Four lockdown again.
Expect to hear much from them from now on about the future.