Liam Dann: Unloved and out of fashion - GDP still matters

Construction may have accounted for half of GDP growth in the first quarter. Photo / Jason Oxenham

Unloved and unfashionable though it may be, GDP growth still plays a crucial role in the Government's ability to spend.

So tomorrow, when we get the first look at the data for the year, it deserves some time in the spotlight.

In the wake of last month's Wellbeing Budget, New Zealand's shift away from a singular focus on fiscal indicators has made headlines around the world.

"What nation isn't obsessed with ensuring economic growth? New Zealand, apparently," wrote the Washington Post.

The timing of the Wellbeing Budget has played well to international economic commentators grappling with similar issues, such as low wage growth and rising inequality.

Tomorrow we find out how it was tracking through the first quarter of this year.

While it is widely expected to be slowing, the extent of that slowdown is far from clear.

Economists at our four major banks offer a spread of predictions.

ANZ economists say it will be 0.4 per cent growth for the quarter, ASB reckons 0.5 per cent, and both Westpac and BNZ say 0.6 per cent.

That corresponds to an annual percentage change of as little as 2.2 per cent growth and as much as 2.4 per cent.

Treasury - whose forecast really counts - has revised down its annual growth outlook to 2.4 per cent in the Budget.

That's well shy of growth above 3 per cent that once had us dubbed a "rock star economy".

Looking further out though, the consensus broadly is that the slowdown will bottom out in the middle of this year before bouncing back next year.

We could yet be rocking again.

Critics have argued that whether we are above or below 3 per cent has little bearing on those stuck in a poverty trap.

But where the number falls matters.

It represents real dollars in the economy and greater tax revenue and more spending choices for the Government.

Indicators leading into this GDP result - which is one of the most backward-looking pieces of economic data - have been mixed.

ANZ, in its relatively gloomy take, points to retail spending volumes remaining solid while spending growth has slowed.

ASB economists point out that the Quarterly Survey of Business Opinion (QSBO) "foreshadowed a soft start to the year".

The primary sector is expected to be a slight drag on growth - with falling dairy volumes offsetting good prices for meat and wood.

Manufacturing activity is solid until you strip out agriculture - at which point it looks pretty sluggish.

Finance Minister Grant Robertson announces the Wellbeing Budget. Photo / Mark Mitchell

Construction and building activity will continue to be one of the biggest drivers of growth.

Westpac economist Michael Gordon says construction will account for about half of growth.

Meanwhile, per capita growth - an issue the current Government targeted for criticism when in opposition - is poised for "yet another weak print", ANZ's Miles Workman said.

"It's quite likely this softness will be amplified by the volatile migration data, which at face value suggests population growth accelerated in quarter one."

As all the economists point out, there is help on the way for the sluggish economy.

The current (2nd) quarter of GDP growth is likely to benefit from the Reserve Bank rate cut and expectations of more to come.

Stimulatory government spending is still working through the economy. Business and housing market confidence may also be boosted by the removal of the capital gains tax proposal.

It's odds on that we will see a lacklustre quarter of economic growth reflected in Thursday's data.

But we should still hope for a number at the high end of forecasts. It will mean a less pronounced downturn and an easier road back to strong growth.