by Dr Murat Ungor
Do not pay too much attention to the “R” word; however, the cost-of-living crisis is still with us.
According to Stats NZ, the economy experienced a contraction of 0.1 percent in the March quarter, marking the second consecutive quarter of decline.
News headlines are now proclaiming that the
New Zealand economy is officially in a recession: the “R” word is back. The definition of a recession most frequently used in the media is known as a “technical recession”, which requires two consecutive quarters of negative growth in real GDP.
I agree with Darren Morgan of the Office for National Statistics in the UK, who says: “You could get a -0.1 percent or +0.1 percent change, but how different really was the economy at that point in time?”
Towards the end of last year, the New Zealand economy witnessed a contraction, accompanied by significant downturns in key sectors.
In the three months ending December 2022, GDP fell by 0.7 percent on a seasonally adjusted basis, following a revised 1.4 percent increase in the previous quarter. Additionally, in the March 2023 quarter, GDP declined by 0.1 percent, aligning with the predictions of a Reuters poll involving 13 economists.
Economic growth in New Zealand has been projected to weaken.
The International Monetary Fund’s April 2023 World Economic Outlook Report indicates that New Zealand will experience a significant deceleration in economic growth. The growth rate is expected to decline from 2.4 percent in 2022 to 1.1 percent in 2023.
According to the June 2023 Economic Forecast Summary of the OECD, growth in New Zealand is projected to ease to 1 percent in 2023.
The same OECD report recommends reducing inflation is a pre-requisite for a sustainable recovery.
Many central banks have been tightening monetary policy and raising interest rates to combat inflation. In May, the RBNZ’s Monetary Policy Committee increased the Official Cash Rate (OCR) by 25 basis points from 5.25 percent to 5.5 percent.
New Zealand’s annual inflation rate fell to 6.7 percent in March, still more than double the Reserve Bank’s mid-point of the 1-3 percent inflation target range.
Moreover, food prices remain high. On June 14, 2023 we learned that food prices were 12.1 percent higher in May 2023 than they were in May 2022.
The cost-of-living crisis and high food prices are deeply intertwined, particularly for low-income families who frequently allocate a significant portion of their budget towards purchasing food.
Providing targeted assistance to low-income households will be beneficial for them.
A new law enabling sole parents on a benefit to receive child support payments for their tamariki is a commendable policy to accomplish this goal.
We need additional policies that align with investments in early childhood development. Nobel laureate James Heckman has been advocating for years that “those aiming to reduce deficits and strengthen the economy should make substantial investments in early childhood education”.
Implementing policies targeted at relieving the financial strain of the cost-of-living crisis on our children will result in long-term benefits for all of us.
The cost-of-living crisis will remain a central focus of economic discussions as New Zealand heads into the 2023 General Election.
■ Dr Murat Ungor is a senior lecturer in the University of Otago’s Department of Economics.