Liam Dann: GDP — Melbourne Cup day for economists

COMMENT:

Next week we find out how much richer New Zealand got between April and June this year.

I don't know how much richer you got but I had to replace the gearbox on the Toyota, so it wasn't a great quarter for me.

Technically what we get on Thursday is GDP growth data for the three months to June, which sounds less sexy.

Though it gives us an overview of the broader economic environment, the quarterly ups and downs of GDP may only bear a tangential relationship to our personal prosperity.

Regardless, a whole bunch of economists will attempt to divine greater meaning from numbers that record how much commercial and industrial activity has been going on.

Even they have to liven it up by running a kind of sweepstake — a bit like the Melbourne Cup.

Will it be 0.5 per cent growth or 0.7? Woah ... 0.9 per cent! Easy tiger.

That's the range of figures being picked in the previews published so far — giving us annual GDP growth of between 2.3 and 2.7 per cent.

Both Westpac and ASB economists have picked 0.9 per cent, putting them in the more optimistic camp.

The economists will break it down by industry sector, divide it on a per capita basis and put it all in a historic context.

At that point we'll be able to put together a narrative on how the economy is tracking.

For those that haven't been paying attention this year, the prevailing view is that the current economic cycle peaked last year.

That's coincided with the arrival of the new Government adding a political dimension to the whole discussion.

Is the Government to blame for the slowdown? If you pay attention to business confidence surveys then you might think so.

With business confidence at record low levels there is a risk that it could be dampening growth.

But many of the local economists will tell you there's a lot more at play.

Consumer confidence and retail spending are both holding up well. House prices are still rising in most parts of the country. Unemployment is low.

Agricultural and forestry production was strong, as were export prices. And the Government is spending a bob or two — so public sector growth is likely to be strong.

That's the more upbeat take, of course. There's always the possibility of a downside surprise.

Another problem with GDP data is that its historic by the time we get it.

We're almost finished the third quarter already. Most of the gloomy "winter of discontent" stuff we've been hearing from business won't be tested against actual data until December.

There is also a growing backlash against using GDP as the primary measure of economic progress.

In the wake of the widening inequalities we've seen since the global financial crisis — many economists are looking again at broader measures of progress.

Critics have noted that GDP only measures commercial output. An earthquake can boost GDP because construction activity ramps up.

If volunteer workers and primary care givers put in a particularly strong performance — improving many peoples lives — that doesn't count for anything.

It's worth remembering that even the economist who invented the modern concept of GDP warned against giving it too much weight.

Simon Kuznets developed the concept of using GDP growth as an economic scorecard in the 1930s.

Right from the start, he warned against its use as a measure of welfare.

He once wrote: "The welfare of a nation can scarcely be inferred from a measure of national income."

Ironically, given the way GDP growth is now slavishly followed around the world — the quote makes him sound like some sort of hippie (It's not all about the money, man) ... which he wasn't.

Kuznets lived long enough to see his warnings ignored and by the 1980s GDP growth was held up above all other numbers as a measure of national success.

China's high-profile use of GDP targets — as it embraced market economics — further entrenched its place as the primary measure of economic success through the 1990s and 2000s.

Kuznets would no doubt be heartened by what's happening in New Zealand right now.

Finance Minister Grant Robertson has charged the Treasury with rebuilding the way it measures progress from the ground up — starting with the 2019 Budget.

Last week he released planned amendments to the Public Finance Act, which will require the Treasury to report on wellbeing indicators, alongside macroeconomic and fiscal indicators.

In other words, the Treasury will have to balance the focus on GDP growth with other factors like public health statistics.

It's good to see GDP growth being put into a more holistic context.

But for all that I'm not going to stop watching it closely.

We still live in an industrial age and, viewed from a safe distance, GDP growth broadly correlates with the social world in which we live.

You might lose your job or go broke during a boom or you might start a business and make your fortune during a recession — but you are less likely to.

In the system we live with, maintaining economic growth provides stability to get on with living life — whether that's doing business or taking time out to smell the roses.