'Profound uncertainty': State of NZ's economy revealed

Author
NZ Herald,
Publish Date
Wed, 16 Sep 2020, 1:09PM
WELLINGTON, NEW ZEALAND - MAY 14: L to R: Prime Minister Jacinda Ardern, Greens leader James Shaw and Finance Minister Grant Robertson. Photo / Mark Mitchell
WELLINGTON, NEW ZEALAND - MAY 14: L to R: Prime Minister Jacinda Ardern, Greens leader James Shaw and Finance Minister Grant Robertson. Photo / Mark Mitchell

'Profound uncertainty': State of NZ's economy revealed

Author
NZ Herald,
Publish Date
Wed, 16 Sep 2020, 1:09PM

The Treasury's opening of the Government's books ahead of the election reveals a better picture of the economy right now than had initially been expected.

However going forward the economic situation in some areas is worse than predicted, as New Zealand heads into a period of what Treasury secretary Caralee McLiesh called "profound uncertainty."

In fact, speaking at the unveiling of the Pre-Election Economic and Fiscal Update (PREFU) this morning, Finance Minister Grant Robertson said that "uncertainty is the commodity that the world shares in abundance".

Despite this, unemployment estimates have been significantly revised down and pushed out almost two years, today's figures reveal.

The Treasury had expected the jobless figure to reach almost 10 per cent this month, but today's numbers show that the highest level unemployment is expected to reach is 7.8 per cent in March 2022.

"These are signs that the New Zealand economy is robust," Robertson said this afternoon.

But the data also shows that unemployment will remain higher for longer which, according to Infometrics Senior Economist Brad Olson, will make it harder for unemployed people to find jobs in the long term.

Bagrie Economics chief economist Cameron Bagrie pointed out that today's figures show the number of people projected to be on the Jobseeker and the emergency benefit in 2024 is 246,000.

That compares to 180,000 in May's Budget and reflects a "slower recovery".

Today's numbers also reveal the Government's deficit this year is lower than expected; $23 billion in the red as opposed to the $28 billion revealed in May's Budget.

But that number is higher in the long term, hitting a $12 billion deficit in 2024 according to today's numbers – that figure was expected to be just under $5 billion in May.

Robertson said this was the "price we pay" for the unprecedented levels of Government spending, such as the wage subsidy scheme.

The Government's overall expected level of debt is up slightly, when compared with budget estimates.

Bagrie said PREFU showed New Zealand is at a "pickle point".

"Spending restraint is not enough to materially lower debt and return to surplus," he said, adding that deficits are projected for 15 years.

"Either we need to get the economy stronger or taxes are going to be headed higher."

Covid-19 is still expected to take a significant toll on the economy, but that toll – according to the Treasury – is not as bad as expected.

Treasury officials had expected tomorrow's GDP figure to reveal a 23.5 per cent drop over the period when New Zealand first went into lockdown.

But its updated numbers show it's now expecting that figure to be 16 per cent.
Although better than expected, it's still the biggest one-off drop in economic growth in New Zealand's history.

But, in the long term the hit will be worse than had previously been expected – this is due to the fact the world economy is expected to do worse than had been expected.