Politicians are apt to seize on the forecasts that suit their agenda rather than the forecasts that favour the case being promoted by their opponents.
We were by no means surprised, therefore, that National’s Amy Adams bandied GDP forecasts from Infometrics which predict growth of “roughly 2% per year between now and 2021“, which is “more than 1% lower than Treasury’s economic forecast“.
If this be so, she asked in Parliament yesterday, what effect would GDP growth 1% lower than Treasury forecasts have on future Government surpluses? A good question.
Finance Minister Grant Robertson said in reply it was not the rate of economic growth that would decide future Government surpluses… “it’s the priorities and spending decisions of Governments”.
But on Budget Day, May 17, GDP growth did come into his fiscal-policy considerations. According to a press statement:
Responsible decision-making and a strong economy will deliver a forecast $3.7 billion surplus in 2018/19, up from $3.1 billion forecast in the current year, says Finance Minister Grant Robertson.
So what will responsible decision-making and a weak economy achieve – or irresponsible decision-making but a strong economy?
Adams pressed the Minister yesterday, asking if he acknowledged any concern that
” … all respectable economists and commentators, including Infometrics, ANZ, and New Zealand Institute of Economic Research, amongst others, are now talking down our economic future under this Government’s low-growth, anti-business policies, and we are now, once more net losers”.
This was ruled out of order and she had to put it another way, asking if Robertson acknowledged any concern that the economy now shows all the signs of slowing down considerably.
Robertson wasn’t prepared to do that. He said he was prepared to acknowledge that some business sentiment is negative, but the consensus forecasts — for example, the one published by FocusEconomics this month — shows growth of about 3% is expected.
Adams asked if he was seriously trying to claim that the policies of this Government like union-friendly industrial relations changes, significantly higher labour costs, more strike action, banning oil and gas exploration, turning away foreign investment, and many others would have no effect on businesses or jobs or accounted for lower GDP forecasts.
Robertson reiterated that the consensus forecast is around 3% growth, which is what Treasury was expecting. Moreover, he referred to the Infometrics report which said:
“We do not believe current business confidence levels signal a major contraction in business investment.“
Robertson did agree with the proposition that the most effective way to be able to afford essential Government services like higher nurses salaries and more infrastructure is to have a growing economy.
Economic growth was “very important”, he said, and 3% growth will give the Government the ability to continue to invest in areas that the previous Government overlooked.
Adams: In light of that answer, how can he be so dismissive of the numerous economic forecasts, which are now coming out, showing that our GDP growth is slowing, which will make it harder to pay for essential services like salaries and infrastructure?
Hon GRANT ROBERTSON: I repeat what I said earlier: there are a number of different forecasts. The consensus forecast released by FocusEconomics this month says 3% growth is what we can expect.
It’s worth noting that the NZIER Consensus Forecasts published last month have a mean forecast of 2.9% for GDP for the 2018/19 March year. The lowest forecast is 2.6%; the highest is 3.1%.
For 2019/20 the average forecast is 3.2%. The lowest forecast is 2.8%; the highest is 3.6%.
These forecasts are lower than they were in the March quarter.
The NZIER says:
Consensus Forecasts expects a slightly softer growth outlook through most of the projection period, relative to the previous quarter.
Recent activity indicators point to softer growth in the near term. Beyond 2018, annual growth is expected to peak at 3.2% for the year to March 20.
FocusEconomics more recently said the NZ economy lost some momentum at the start of the year, with quarter-on-quarter GDP growth moderating to 0.5% in Q1, following 0.6% expansions in each of the previous two quarters.
Growth came primarily on the back of the services sector, with the information and telecommunications industry contributing the most to the first-quarter expansion. Available data points to a continuation of relatively soft economic activity in Q2.
Consumer confidence lost strength in the quarter, while debit and credit card spending fell, suggesting waning private consumption growth in Q2. Moreover, downbeat business sentiment persisted throughout the quarter, reflecting firms’ reduced employment and investment intentions. The external sector yielded more positive results, however, with the trade balance recording healthy surpluses in April–May as exports continue to benefit from solid Chinese demand.
Although the economy had lost some steam in recent months, growth is expected to remain robust going forward.
Government plans to lift spending, an accommodative monetary policy stance, favorable export prices, and a tight labor market underpin the outlook. High levels of household debt remain a key downside risk, however, given the increased debt-service burden on borrowers if interest rates were to rise significantly. FocusEconomics panelists expect the economy to expand 2.7% in 2018, down 0.2 percentage points from last month’s forecast, and 2.7% again in 2019.
We suppose that’s about 3%. You could say it’s about 2.5% too.