We're not so much on the precipice of recession, but are in a scramble to keep from falling off the edge, an ANZ economist has told business leaders today.
ANZ chief economist Sharon Zollner addressed a Wellington crowd before Finance Minister Grant Robertson went on stage to discuss New Zealand's economy and Budget 2022.
Yesterday's Budget announcement delivered a huge funding injection for health, with $11 billion over four years to clear DHB deficits and tackle cost pressures ahead of health reforms.
At a business lunch briefing, Zollner said there was no sign yet of inflation pressures waning in New Zealand.
"Is it imported inflation or is it domestic inflation? The answer is, it is both."
She said wage inflation was accelerating, which was a relief for consumers but would cause alarm for some businesses.
Non-wage cost inflation pressures were significant, but Zollner said there was little sign of recession-type problems.
"It's more of a scramble to keep up."
Inflation pressures were very intense but probably peaking right now, she added.
Medium-term fiscal challenges included an ageing population, long Covid, climate change and even earthquakes.
On house prices, Zollner said a 10 to 15 per cent price drop would actually be a relatively soft landing at this point.
A member of the audience asked Robertson why New Zealand was not giving more support to Ukraine, which faced an "existential crisis".
Robertson said New Zealand was primarily focusing its foreign policy on the Pacific, where it frequently worked with Australia.
"When it comes to Ukraine, we have invested in a way we wouldn't have with other conflicts ... And we continue to discuss on a regular basis at a Cabinet level what more we could do."
Geopolitical issues were increasingly topical for company boards, Robertson said, and Ukraine and cybersecurity were among the major issues.
He pointed to a boost in funding for cybersecurity initiatives in Budget 2022.
Another audience member, Presbyterian Support Central chief executive Joe Asghar, said he was concerned about a shortage of nursing staff, poor wages for nurses, and the interplay of these factors with the ageing population.
"It's something as a not-for-profit we are being absolutely hammered on, and in fact are crumbling."
Robertson said new immigrants could help and the Government was "regularising" the visa status of some workers.
Net immigration was expected to reach 20,000 next year and 40,000 the year after that.
"Clearly we are in uncertain and highly volatile times," Robertson added.
China's ongoing pursuit of a Covid-19 elimination strategy was dramatically impacting global supply chains, he added.
"However, the good news for New Zealand is, we enter this period of time in a strong position."
Robertson said New Zealand's economy had withstood the pandemic relatively well.
He said the economy was resilient and Treasury expected unemployment to fall even further, to perhaps 3 per cent.
Government spending would fall to about 30 per cent of GDP in three to four years, and would be significantly less in 2023 than this year, Robertson added.
Budget 2022 also initiated a new, temporary $27 a week payment for people who earned less than $70,000 last year in a $1 billion cost of living package.
Treasury recommended against the Government's cost of living payment for middle-income households.
Treasury said it was a poor mechanism for supporting households with a longer-term problem, and it would make inflation worse in the short-term.
Fuel tax cuts and half-price public transport were extended for another two months to the end of August.
The Covid Fund has been closed and remaining money put into health and the cost of living package. The Covid response will be funded out of government department budgets.