Liam Dann: Return of the rock star economy the right time to tackle inequality

Dairy prices are up, GDP forecasts are strong and your house is worth $1 million. So why the economic gloom? Liam Dann talks to economists Cameron Bagrie and Christina Leung about the sense of unease overshadowing New Zealand’s recovery.

This Thursday GDP figures are expected to show the New Zealand economy grew by at least 3.5 per cent in the year to June 30.

ASB's economists are picking it to be as high as 3.7 per cent.

"We expect GDP lifted a whopping 1.2 per cent over the June quarter, led by construction, manufacturing and retail activity," ASB senior economist Jane Turner writes in her preview.

That will be a stunning result for an agricultural economy that has just been through one of the most dramatic dairy price slumps in living memory.

It's hard not to draw the conclusion that the rock star economy is on the comeback trail - at least in the terms that the catch-phrase was originally coined by HSBC economist Paul Bloxham.

That is to say, relatively speaking.

New Zealand currently has one of the highest growth economies compared to peers in the Western developed world.

The country hasn't had a recession in eight years now.

Australia's economy has just rebounded to 3.3 per cent annual growth.

The bounce in dairy prices of the past few weeks - moving things out of financial disaster territory at least for most farmers - will only add to the confidence to New Zealand's outlook.

We saw in on the currency market last week as the kiwi surged to US74.5c - a 16 month high - and also lifted above A97c.

"The surge in Q2 growth will be led by the construction sector, manufacturing and retail activity. Unusually strong exports will also contribute to a temporary boost to Q2 growth, led by large lifts in meat, dairy, kiwifruit and oil exports," ASB's Turner notes.

There's no doubt the strong economic growth is also being underpinned by record net migration gains.

But as NZIER senior economist Christina Leung points out this still generates positive momentum for the wider economy and is certainly preferable if you consider the opposite - economic contraction due to population decline.

The hope would be that the momentum created is sustained as net migration growth flattens out.

At that point we will start to see an increase in GDP per capita.

Is it sustainable?

Though ASB expects we could see some weaker growth as some of the drivers come off peaks it sees the trend as sustainable.

ANZ economists have noted their business confidence survey suggests may push on towards four per cent next year.

This will help the Reserve Bank find some of the long lost inflation pressure it needs to get back on target.

But at this stage no one sees any reason why they won't cut rates at least once more this year - probably in November.

Regardless, talk of strong economy will anger some those dealing with what appears to be a rise in inequality and poverty at the bottom of the social scale.

It should be a cause for concern.

It's a point worth repeating that the growth we are seeing in this cycle is not helping to level the economic playing field.

The low inflation, low interest rate environment continues to underpin an asset boom which is benefiting home owners and share market investors but risks leaving behind a sizable chunk of the population.

Talk about the return of the rock star economy shouldn't be treated as reason to relax about these issues.

Quite the opposite.

Times of stronger growth and stability are the right times to tackle fundamental economic problems.

This is should be an opportunity for the Government to focus on measures to boost productivity and wages.

At the very least the improved outlook should surely remove any political excuses for not doing more to tackle inequality which is concerning so many New Zealanders.