[ad_1]
Prime Minister Chris Hipkins will face fraught decisions ahead of the May’s budget, a leading economist says, as a shortage of labour and materials continues to hammer the economy and drive up prices.
The latest gross domestic product (GDP) figures show the economy has slowed, which means the Reserve Bank’s tightening monetary policy – which has raised interest rates and made mortgages more expensive – may have triggered the recession it was seeking.
Data released by Statistics New Zealand on Thursday showed the economy shrank 0.6% in the final three months of last year, larger than banks had predicted. However, the economy is 6.7% bigger than before the first Covid-19 lockdown three years ago.
Finance Minister Grant Robertson said the figures showed the economy was “volatile” and that it was always going to be a challenging year.
READ MORE:
* GDP drops 0.6%, economy on the skids
* Signs New Zealand is in a recession
* Newsable today: Silicon Valley Bank’s collapse (and what it means for you), and the big chicken nugget question
* The private sector has to help solve our infrastructure challenge
“We are well-positioned to support New Zealanders dealing with cost of living and the impact of flooding and cyclones with near-record-low unemployment, rising tourist numbers and the Government’s books in solid shape,” he said.
Government spending had sharply dropped from a pandemic-related high. However, it was still 16% higher than pre-pandemic levels, suggesting the Government is still spending at high rates on services not related to the pandemic.
SUNGMI KIM/Stuff
Grant Robertson will have to decide where best to invest public funds.
Brad Olsen, chief executive and principal economist at Infometrics, said the Government had enough debt headroom to borrow “$20 billion tomorrow” but was constrained by a scarcity of labour and materials. Meanwhile, transport, health and education infrastructure all needed more investment.
The speed at which business and communities had recovered after the lockdown – which seriously reduced economic output – showed how resilient the economy is. Much of this was a result of the wage subsidy, which he said supported 70% of businesses.
However, the Government faces some very expensive infrastructure problems in both the short term and longer-term, including those tied to the climate crisis.
“We run assets into the ground and then some. We end up playing whack-a-mole with our infrastructure,” he said.
BRUCE MACKAY/Stuff
Nicola Willis says the Government needs to do more to help with inflation. (File photo)
“If we are going to make those difficult decisions we have to make them in full view of the public and with a strong rationale behind them.”
National Party’s finance spokesperson Nicola Willis said the higher costs for everyday items as a result of high inflation was “not a short blip” and the Government needed to do more.
“It is well past time to be backing productive businesses, getting workers back into the economy, stopping the tsunami of regulation and red tape, and I don’t think that Grant Robertson has what it takes.”
Craig Renney, a former political adviser to Grant Robertson, and now the CTU economist and policy director, cautioned against extrapolating too much from a single data set.
However, the Reserve Bank would now be questioning how much it should raise interest rates at its next monetary policy statement in May.
“The economy has slid more than market expectations. This should give the Government and Reserve Bank pause for thought,” he said.
An increase in unemployment would worry the Government, he said.
“There is no sign of that yet but if there was that would be bad news for the Government.”
[ad_2]