But it is a fraught business at the best of times.
Choose two deep-thinking, thorough and politically neutral economists and you can bet they’ll still arrive at different conclusions about the current state of the economy (let alone predictions of where it is going).
So excuse me if I’m a bit sceptical about the quality of economic analysis coming at us from our dedicated political leaders.
I’ve had the privilege of hearing both Christopher Luxon and Chris Hipkins talk to business groups in the past few weeks.
For the record, I thought they both presented well and came across as credible, caring and professional leaders.
But both of them fired off a barrage of statistics to make the case that the economy is A) Doing fine, and B) Doing terribly.
They can’t both be right, can they?
You’ll have your own view on who is more credible. That’s because you’ll have your own experience of this economy and your place in it.
Macro-economic statistics are important. They do give us an understanding of the forces that are shaping our personal experiences.
In isolation, the numbers are vulnerable to misuse.
To get value, we need to step back and look at a range of measures, across meaningful time periods. We need to benchmark them against meaningful comparisons.
There’s a lot that hangs on that word “meaningful”.
Some things that people find meaningful about the economy are job security and a sense of progress towards being more wealthy as opposed to feeling poorer.
I think Labour has done well on the former and poorly on the latter.
I don’t think it is controversial to say that Luxon has the upper hand right now.
There’s no getting around the fact that New Zealand is in the tough bit of the economic cycle right now.
Timeframes matter. If we narrow our focus too much, we can manipulate the narrative.
But equally, there is little point in standing back too far and looking at long-term historical trends.
As economic heavyweight John Maynard Keynes pointed out: “In the long run we are all dead.”
If we take too big an overview we are dealing with history, not economics. In economics a sense of how we’re doing compared to last week or last year is important.
It’s not unreasonable to expect politicians to deal with and take responsibility for the here and now.
In the here and now, unfortunately for the Labour Party, New Zealand looks to be in worse shape than several of the nations we like to compare ourselves to: the US, UK and Australia.
Several commentators have recently noted that, based on a new IMF table of GDP forecasts, New Zealand’s growth outlook is at the bottom of all the developed nations, at 0.8 just per cent for 2024.
Some have even made the leap to suggest that puts us next to Equatorial Guinea on the IMF economic league tables.
In terms of meaningful comparison, that is a bit silly. It makes a political point but not a good economic point.
First, there is an enormous distance between 0.8 per cent growth and the 8.2 per cent contraction forecast for Equatorial Guinea.
We aren’t actually far off the nations we should be comparing ourselves to. Italy is also projected to grow at 0.8 per cent in 2024, and the US and UK are projected to grow at just 1.1 and 1 per cent respectively.
There’s a chance the IMF is actually being overly optimistic about our growth prospects next year, especially if China keeps faltering as it has been.
My point isn’t that IMF projections are better or worse than any others.
But topline GDP growth is a meaningless statistic unless we look at it per capita and relative to the baseline.
For example, if we look at nations projected to have the highest GDP growth in 2024 by the IMF, you get places like Niger, one of the poorest countries in the world, with 13 per cent projected growth.
There’s no shortage of economists who see GDP as a ropey measure of an economy.
Even Simon Kuznets, the guy who popularised its modern usage in the 1930s, eventually became disillusioned by its overuse and warned that it should never be confused with national wellbeing.
It is also worth noting that, if we picked a wider timeframe, we’d get a very different picture. Our GDP growth was much stronger than many of our peers through 2020 and 2021.
I’ve talked to Aussie economists who think we are at the front end of this economic cycle relative to them. They think we’ll be coming out of the downturn sooner. Which is good news for us, if not the incumbent government.
But we should equally be wary of pretending any short-term economic statistics in the next few weeks mean we are through the worst.
Stats NZ produced some upbeat data last week. Its Business Financial Data, which collects a combination of survey, tax and other administrative data, showed sales across most of the country’s industries increased more than 3 per cent in the last quarter, while salaries and wages increased more than inflation.
We’ve also seen business confidence improve in the past few months and there is a reasonable chance we bounced out of recession in the second quarter.
But economists expect we’ll be back in a recession later this year and early next as high interest rates take their toll and inflation falls.
That’s why average growth is likely to be so low in 2024.
