Gross Domestic Product (GDP) dominates headlines because it tells us how the economy is doing at a macro level. But it doesn’t explain why, for many New Zealanders, it still doesn’t feel like things are getting better.
With growth of 0.2%, the fourth-quarter GDP result sits at the low end of economists’ predictions and significantly below the Reserve Bank’s forecast of 0.5%.
There was growth, but it was modest.
Talking to the Front Page podcast, Herald Business Editor-at-Large Liam Dann says he would have liked to have seen growth around 0.4%.
“I felt like we were starting to get some momentum going. You’ve got a simple equation in New Zealand. You’ve got really strong dairy export prices and meat export prices, so that brings money into the country.
“Then you’ve got interest rates coming down lower, and in days gone by that was enough for an economic boom, so I was hopeful it would be stronger.”
The GDP growth announced this week is based on data captured late last year, and that modest momentum now faces fresh pressure from conflict in the Middle East.
In a statement about the GDP result, Finance Minister Nicola Willis said, “The conflict will have an impact on the economy, but we are starting from a much stronger position now than was the case in the past few years, when high inflation and high interest rates were weighing down on people”.
Dann says the Government’s swift shift in focus from the GDP performance to the economic impact of the war was likely a strategic move, but was unsurprising given the weaker-than-expected GDP result.
“I’m sure the Government would’ve liked to see the stronger number and would’ve talked about it more had that been the case. It wasn’t, so they switched quite quickly to the crisis in front of them, which is fair enough. They’ve got a lot to deal with.
“If the economy isn’t going to deliver for them, then they’ve got to really show great leadership and make us all feel secure and confident that they’re the people who’ll get us through this crisis.”
While he acknowledges fears around petrol prices, Dann says the bigger issue for the wider economy is diesel, which drives freight and transport. When transport prices rise, that cost flows through to goods and feeds inflation.
That’s when a technical recovery starts to feel to households like the economy is going backwards.
“And that’s really bad news because we’ve already got quite high inflation, so it sort of puts a real squeeze on the recovery that we were looking for in the longer term,” Dann says.
“And that’s probably what’s unavoidable, and somehow we’re going to have to manage our way through.”
Despite daily headlines about surging oil prices and worst-case scenarios of how high they might go, Dann says it would take a “mighty doozy of something bad to happen to get it up to $200 [a barrel]”.
He continues to hold out hope that the economy will get back on track.
“I’m a little nervous, like everyone, about supply and the tankers getting through to South Korea and Singapore and getting refined and them selling it to us, and us having enough for those tight few weeks. But otherwise, I remain reasonably optimistic.”
For now, that optimism sits alongside an economy that is technically improving, but still not translating into relief for many New Zealanders.
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