New Zealand’s economy has fallen significantly but it fell from a high point after strong activity in the latter stages of the pandemic, according to one economist.
HSBC’s Australasian chief economist Paul Bloxham said in an update this week that Aotearoa, which he once hailed as a “rockstar” economy, had the economy has fallen largest decline in economic growth in the developed world last year, driven by interest rate increases in response to post-pandemic inflation.
But Infometrics principal economist Brad Olsen said while the New Zealand economy had “clearly gone through a pretty tough pitch, it’s important to keep things in perspective”.
Olsen said the economy is the “deepest” fall since the 1990s. But it was important to remember “that a lot of this much weaker activity over the last year, year-and-a-half has come after a pretty strong build-up of activity that we saw during the latter stages of the pandemic, as a lot of monetary stimulus was coming through”.
“Interest rates were stimulating a lot of spending and a lot of investment.
“We have fallen quite a way. But we’re falling from a high starting point.”
Bloxham said the recession had lowered inflation, which had allowed the Reserve Bank to cut rates.
There were already some signs of improvement, he added, including business and consumer surveys up, and a rise in card spending.
The housing market also appeared to be stabilising and unemployment was expected to fall later in the year.
But it was still “very tough out there” for both businesses and households, Olsen said.
“There’s less activity than before and there’s quite a miserable amount of pain coming through in the economy.
“Realistically, I think what we’re seeing in the New Zealand economy is going through some pretty big changes in terms of big amounts of monetary stimulus in big amounts of monetary contraction.
“We’re sort of trying to figure out where the new Goldilocks zone is, and that’s of course causing a lot of pain.”
He said the green shoots of an economic turnaround were starting to appear – including a lift in spending and lower mortgage rates – but it would not be quite as immediate people hoped.
“It will take still a couple of months for the economic engine to really start to get going.
“The longer-term question is, ‘How do we get back to that much stronger economic position where we had strong productivity growth, we were seeing higher living standards across the board, rather than at the moment?’
“We’re just trying to get back to normal levels of growth and we want to be moving above that.”
In terms of how to do that, Olsen said the Government was “on the right track” with its plan to encourage foreign investment by setting up a new agency.
To succeed, the agency should make investing in New Zealand as easy as possible.
“There are big opportunities for us in New Zealand [and] there’s big opportunities for overseas investors.
“But if we make it too hard or if we don’t make it gold-plated easy, then investors will just find an easier, simpler option somewhere else overseas.”
The challenge was that any changes to the economy could take a couple of years to bed in, and support growth, he added.
“But the longer we leave it, the longer we have to wait for that to drive economic growth.
“So the sooner we get on with it, the better.”
By Rachel Helyer Donaldson for rnz.co.nz
