Next week's GDP data could show annual growth touching 3.5 per cent - so why are people so gloomy about the economic outlook?

Precipitous house prices, deflation risk and ongoing global concerns have dominated the discussion through a long wet winter.

But with more good news on dairy prices due this week, and a strong GDP number expected, it is worth remembering that the underlying performance of the New Zealand economy remains strong.

BNZ economists today picked that annual growth may even hit 3.5 per cent when data for the year to June 30 is released next week.


Last week ANZ's business confidence survey pointed to a trend that could see GDP lifting towards 4 per cent next year.

Were that trend to play out as net migration falls back to more normal levels - which it is maybe starting to do - it would put us in extremely good shape.

Perhaps it is global uncertainty contributing to the state of economic anxiety.

The year kicked off with a market meltdown in the US, Chinese economic slowdown fears kept the worries coming until things really went haywire with the Brexit in June.

While global growth may be slowing, markets have trucked on. We're still in a bull run - one that by some measures could be the second longest in history.

It has been underpinned by record low interest rates around the world - including New Zealand - with investors seeking higher yields from equities.

But if GDP growth is really above three per cent and accelerating, why is the Reserve Bank expected to cut rates again in November - and perhaps a gain early next year.

The dominant driver is the persistent lack of inflation and the high Kiwi dollar.


The Reserve Bank actually is quite upbeat in its economic forecasts but it is mandated to keep trying to push inflation up towards 2 per cent.

But there are still some big fundamental problems with the economy that we can't escape despite the good numbers.

It is still just 0.4 per cent and has been below target for more than two years.

You'd think low inflation would make people happier. Prices don't rise much, some even fall.

But there are still some big fundamental problems with the economy that we can't escape despite the good numbers.

Wage and productivity growth remain low, which might be fine if you have capital invested in assets like housing and stocks.

That's why there has been so much economic discussion about soaring house prices all over the western world.


They present an economic and social risk as more people are locked out of the market.

Even if you are in the market the knowledge that others - potentially you're children - are missing out can take the shine off the wealth effect.

At the really low end of the economic spectrum we see reports of rising homelessness and families crowded into unsuitable accommodation like garages.

Regardless of whether GDP is 2.5 per cent or 3.5 per cent this is not the kind of country most New Zealanders want to live in.

There seems to be a disconnect then, between what we would traditionally call very good economic data and the daily life for many New Zealanders.

These trends aren't just local of course. All over the Western world we are hearing calls for a fresh look at how we manage economies - new monetary polices and more focus on government backed fiscal policies.


But in New Zealand the dilemma is starting to look particularly acute because technically speaking - on league tables like GDP growth and interest rates - our economy looks like one of the best in the world.

So on the one hand the Government is entitled to take credit for this solid economy - it's easy to complain but really things could be an awful lot worse, and in many countries they are.

But on the other hand that ongoing stability and growth undermines excuses the Government might have to avoid tackling inequality and poverty.