Latest news with #JarrodKerr
Scoop
5 hours ago
- Business
- Scoop
Who's Really To Blame For Our Economic Troubles?
New Zealand's economic downturn is proving hard to shake - but economists say when it comes to identifying the cause, it's not as simple as pointing the finger at government spending cutbacks or the Reserve Bank's interest rate hikes. Although conditions are expected to improve as the year progresses, the economy remains sluggish. The primary sector is providing one of the few bright spots. Last weekend, when issuing an annual update, Kiwibank chief economist Jarrod Kerr blamed the Reserve Bank's decision to thrust the economy into recession to tamp down problem inflation. Some readers contacted RNZ saying that was too simplistic and letting the government off the hook for the impact its spending cutbacks and public sector job cuts were having. "My wife's MPI office in Christchurch reduced headcount by about 10 percent," one wrote. "For each public service worker cut, two to three private sector jobs went with it. The cancellation or freezing of so many infrastructure projects saw my industry (engineering) lay off a quarter to a third of the workforce." So who's to blame? "The overstimulus of the economy from both the government and the Reserve Bank in 2020 and 2021 meant the economy was unsustainably overheated," said chief forecaster at Infometrics Gareth Kiernan. "The government and the Reserve Bank got us into the mess we were in, in the first place, and therefore had to get out again." While normally monetary and fiscal policy would work to smooth the economic cycle, that was not the case this time, which made the upswing hotter and the downturn bleaker. "Normally, if the economy is going hot, they tend to pull things back. And if the economy is slowing down and we're heading to recession, you typically get more government spending and lower interest rates and that sort of thing. That's not what we've had over the last five years because they pumped things up too much and had to cool the jets on the other side. "Both the government and Reserve Bank needed to, they had no choice. "Government spending decisions have exacerbated the recession but they had no choice because they also exacerbated the boom before that." Too much spending He said, in December 2022, government consumption spending was 13.5 percent higher than had been forecast before the pandemic hit. "It's still 7.5 percent larger than we were forecasting now… so they've pulled it back in line but it's still larger than it would otherwise have been expected. "Government investments - infrastructure, schools, hospitals, whatever else - by mid-2024, that's 18 percent larger than we were forecasting." Spending was still 13 percent higher, he said. "That puts some context around the fact that yeah, government has been tight but we still haven't undone or unwound all of the massive government-related Covid boom. "That's also reflective of the fact that fiscal numbers over for the next five years are only just getting back into surplus if you're lucky." Kiernan looked at GDP broken down into household spending, government spending, business investment and exports and imports. He compared the current situation and the experience of the past two years to what normal growth might have been if it had kept going from the 2022 base at a 10-year average rate. "Government investment grew through 2023 and early 2024. It's done its fair share of contribution to how the economy has gone in a positive sense. "If I attribute all of the private sector investment and household spending and the slow growth there to interest rates and in Reserve Bank policy… then you put around about two-thirds of the underperformance of the economy over the last two years down to interest rates, 20 to 25 percent on to the government side of things when you take consumption and investment together and the other 10 percent or so is exports underperforming." Senior economist at ANZ Miles Workman said it was a question of how the Reserve Bank responded to the government's fiscal policies. "The faster the government gets the books back into the black, by restraining spending or increasing taxes, the more likely the RBNZ will need to lower the OCR, which would offset lower demand from fiscal policy settings by shoring up demand from households and businesses. "In other words, it's not as simple as saying government policy has caused X percent of the slowdown and the RBNZ has caused Y percent. The RBNZ's policy stance is a function of fiscal policy settings." 'A con job' Economics professor at the University of Auckland Robert MacCulloch said there had been mishandling of the economy by governments on both sides in recent years. "The narrative the parties are using, that the other party is to blame for our problems… I'm past it now, that all the problems we've got are because of [Jacinda] Ardern and [Grant] Robertson and Labour messed it up, then Labour say the same about National. I think it's a con job on the people of the country. The country hasn't been doing great now for quite a long time under both major political parties." He said the wage subsidy had been a significant source of debt, but while it was introduced by the Labour government, National had put pressure on to extend it for bigger firms, which increased the cost. "Luxon's getting angry saying we inherited a shambles. I mean, what's he talking about? His party voted in favour of the all the fiscal and monetary policy. They were wildly enthusiastic about the wage subsidy scheme." He said the cuts the government were enacting were immaterial in the scheme of the fiscal pressures looming from the ageing population. "The cuts in bureaucracy they've done are just a couple of percent of those increased pressures on health and pensions. They're going to have to grapple with how you deal with those huge outflows with the ageing population… the Nats don't have a plan to rein in the cost of those major programmes." Tough job for Reserve Bank The chief economist at the NZ Initiative, Eric Crampton, said the labour market was "certainly in worse shape" than it had been from mid-2021 to mid-2023. "But employment rates during that period were the result of substantial overheating from debt-fuelled spending and substantial monetary stimulus. They could not be sustained without severe inflationary consequence. It is wrong to blame anyone for labour markets not looking now like they did in 2022." He said monetary policy would always be expected to move last. "That doesn't mean monetary policy is slow. It means that whatever the bank does in monetary policy takes into account what everyone else has done and is expected to do. So if the fiscal authority announces a track - a Budget, Budget policy statement - monetary policy adjusts to take that into account. The Reserve Bank moves last - it makes its move after seeing what everyone else is doing. "Governments can be more and less helpful with all of that. But a bank following an inflation target ought to be taking account of what Parliament is doing. " He said the Reserve Bank had a tough job at present. "While the employment statistics are comparable to where they were around 2016-2017, government estimates still suggest that there is a remaining output gap - that the economy is running a bit below potential. However, there are inflationary pressures both in the non-traded sector and in tradeables. The bank's failure to keep inflation within bounds over the Covid period should have it sensitive to the risks of going above-target again. So I wouldn't want to blame them too much for current unemployment except to the extent that the bank's errors during the Covid period makes things a bit harder now. " He said keeping inflation within its target was the best thing the Reserve Bank could do to ensure long-term stable employment. "Given inflation risks, the bank would likely need to act to offset fiscal stimulus, if Parliament decided to provide further fiscal stimulus - we are still running a substantial deficit as well."
1News
5 hours ago
- Business
- 1News
Who's really to blame for New Zealand's economic troubles?
New Zealand's economic downturn is proving hard to shake — but economists say when it comes to identifying the cause, it's not as simple as pointing the finger at government spending cutbacks or the Reserve Bank's interest rate hikes. Although conditions are expected to improve as the year progresses, the economy remains sluggish. The primary sector is providing one of the few bright spots. Last weekend, when issuing an annual update, Kiwibank chief economist Jarrod Kerr blamed the Reserve Bank's decision to thrust the economy into recession to tamp down problem inflation. Some readers contacted RNZ, saying that was too simplistic and letting the Government off the hook for the impact its spending cutbacks and public sector job cuts were having. "My wife's MPI office in Christchurch reduced headcount by about 10%," one wrote. "For each public service worker cut, two to three private sector jobs went with it. The cancellation or freezing of so many infrastructure projects saw my industry (engineering) lay off a quarter to a third of the workforce." ADVERTISEMENT So who's to blame? "The overstimulus of the economy from both the government and the Reserve Bank in 2020 and 2021 meant the economy was unsustainably overheated," said chief forecaster at Infometrics Gareth Kiernan. "The government and the Reserve Bank got us into the mess we were in, in the first place, and therefore had to get out again." Normally monetary and fiscal policy would work to smooth the economic cycle but that was not the case this time, which made the upswing hotter and the downturn bleaker. "Normally, if the economy is going hot, they tend to pull things back. And if the economy is slowing down and we're heading to recession, you typically get more government spending and lower interest rates and that sort of thing. That's not what we've had over the last five years because they pumped things up too much and had to cool the jets on the other side. "Both the Government and Reserve Bank needed to, they had no choice. "Government spending decisions have exacerbated the recession but they had no choice because they also exacerbated the boom before that." ADVERTISEMENT Too much spending Budget (generic illustration). (Source: 1News) He said, in December 2022, government consumption spending was 13.5% higher than had been forecast before the pandemic hit. "It's still 7.5% larger than we were forecasting now… so they've pulled it back in line but it's still larger than it would otherwise have been expected. "Government investments — infrastructure, schools, hospitals, whatever else — by mid-2024, that's 18% larger than we were forecasting." Spending was still 13% higher, he said. "That puts some context around the fact that yeah, government has been tight but we still haven't undone or unwound all of the massive government-related Covid boom. ADVERTISEMENT "That's also reflective of the fact that fiscal numbers over for the next five years are only just getting back into surplus if you're lucky." Kiernan looked at GDP broken down into household spending, government spending, business investment and exports and imports. He compared the current situation and the experience of the past two years to what normal growth might have been if it had kept going from the 2022 base at a 10-year average rate. "Government investment grew through 2023 and early 2024. It's done its fair share of contribution to how the economy has gone in a positive sense. "If I attribute all of the private sector investment and household spending and the slow growth there to interest rates and in Reserve Bank policy… then you put around about two-thirds of the underperformance of the economy over the last two years down to interest rates, 20 to 25% on to the government side of things when you take consumption and investment together and the other 10% or so is exports underperforming." Senior economist at ANZ Miles Workman said it was a question of how the Reserve Bank responded to the Government's fiscal policies. "The faster the Government gets the books back into the black, by restraining spending or increasing taxes, the more likely the RBNZ will need to lower the OCR, which would offset lower demand from fiscal policy settings by shoring up demand from households and businesses. ADVERTISEMENT "In other words, it's not as simple as saying government policy has caused X% of the slowdown and the RBNZ has caused Y%. The RBNZ's policy stance is a function of fiscal policy settings." 'A con job' Economics professor at the University of Auckland Robert MacCulloch said there had been mishandling of the economy by governments on both sides in recent years. "The narrative the parties are using, that the other party is to blame for our problems… I'm past it now, that all the problems we've got are because of [Jacinda] Ardern and [Grant] Robertson and Labour messed it up, then Labour say the same about National. I think it's a con job on the people of the country. The country hasn't been doing great now for quite a long time under both major political parties." He said the wage subsidy had been a significant source of debt and, while it was introduced by the Labour government, National had put pressure on to extend it for bigger firms, which increased the cost. "Luxon's getting angry, saying we inherited a shambles. I mean, what's he talking about? His party voted in favour of the all the fiscal and monetary policy. They were wildly enthusiastic about the wage subsidy scheme." He said the cuts the Government were enacting were immaterial in the scheme of the fiscal pressures looming from the ageing population. ADVERTISEMENT "The cuts in bureaucracy they've done are just a couple of percent of those increased pressures on health and pensions. They're going to have to grapple with how you deal with those huge outflows with the ageing population… the Nats don't have a plan to rein in the cost of those major programmes." Tough job for Reserve Bank The chief economist at the NZ Initiative, Eric Crampton, said the labour market was "certainly in worse shape" than it had been from mid-2021 to mid-2023. "But employment rates during that period were the result of substantial overheating from debt-fuelled spending and substantial monetary stimulus. They could not be sustained without severe inflationary consequence. It is wrong to blame anyone for labour markets not looking now like they did in 2022." He said monetary policy would always be expected to move last. "That doesn't mean monetary policy is slow. It means that whatever the bank does in monetary policy takes into account what everyone else has done and is expected to do. So if the fiscal authority announces a track — a Budget, Budget policy statement — monetary policy adjusts to take that into account. The Reserve Bank moves last — it makes its move after seeing what everyone else is doing. "Governments can be more and less helpful with all of that. But a bank following an inflation target ought to be taking account of what Parliament is doing. " ADVERTISEMENT He said the Reserve Bank had a tough job at present. "While the employment statistics are comparable to where they were around 2016-2017, government estimates still suggest that there is a remaining output gap — that the economy is running a bit below potential. However, there are inflationary pressures both in the non-traded sector and in tradeables. The bank's failure to keep inflation within bounds over the Covid period should have it sensitive to the risks of going above-target again. So, I wouldn't want to blame them too much for current unemployment except to the extent that the bank's errors during the Covid period makes things a bit harder now. " He said keeping inflation within its target was the best thing the Reserve Bank could do to ensure long-term stable employment. "Given inflation risks, the bank would likely need to act to offset fiscal stimulus, if Parliament decided to provide further fiscal stimulus — we are still running a substantial deficit as well."
1News
5 days ago
- Business
- 1News
Why NZ can't shake the recession: 'Brought to its knees'
New Zealanders were told to "survive till '25" for the economy to pick up - but now one major bank economist says it's probably going to be 2026 before any real improvement happens. Kiwibank's latest Annual Regional Note shows small improvements across the country, but weak scores overall. The national average score has lifted from three out of 10 to four. Southland and Otago top the table at five. Otago was boosted by a recovery in international tourism and improvement in employment. Northland, Taranaki and Gisborne went backwards. Taranaki had the biggest fall in employment of anywhere in the country, at 8%. Northland reported a double-digit drop in building consents. ADVERTISEMENT Retail sales remain below their average levels over the past decade in most regions, as weak household confidence weighs on consumption. Kiwibank said Wellington recorded the steepest annual decline at -3.3%, while regions like Waikato, Northland and the Bay of Plenty experienced a slight improvement on last year. 'Wellington is just more pessimistic' Wellington's score improved from a two out of 10 to a three out of 10 while Auckland lifted from a three to four. "Wellington is just more pessimistic," Kiwibank chief economist Jarrod Kerr said. "It's gone through a lot in recent years. You can see it in their activity, you can see it in the housing market. You can see it in the economy, the city has been brought to its knees and it's been struggling to shake the pessimistic vibe." He said both Auckland and Wellington were well below average. "If you look across the regions, some of them have gone backwards and others are improving but it's not good. "When you look at the South Island things are better, people are definitely more optimistic in the South Island but even then the top-scoring regions get a five out of 10." ADVERTISEMENT He said the report helped solidify the view that rate cuts to date had not been enough to turn around the economy. "We're really crawling out of this recession rather than regaining our footing and looking to grow from here. We're still struggling across the entire country." He said Kiwibank customers last year had talked about needing to hold on until this year. "We are halfway through the year and, yes, things are better but only by a little bit." Worse off than Australia New Zealand was worse off than Australia, he said. "Their economy is much stronger than ours but in their terms it's soft… where everything washes out is the labour market and, you know, the unemployment rate tells you a lot. Our unemployment rate is over 5% and theirs is pretty close to 4%." ADVERTISEMENT Part of the reason was the more aggressive interest rate hikes from the Reserve Bank, he said. "We were much more aggressive in our rate hikes than in Australia. We were much more aggressive on inflation than across the Tasman. "I think both the RBA and RBNZ made mistakes as I think every central bank did through the Covid period, we overstimulated in hindsight but at the time it was the right thing to do. And then we had to deal with the inflation problem." He said the Reserve Bank had kept the official cash rate at 5.5% for too long as it worked to tackle inflation. "We had a really bad recession last year, which the Reserve Bank openly orchestrated, they said 'look, we need a recession to get inflation back down'. The Australians didn't orchestrate a recession, they didn't slam the economy into the floor." Kerr said recovery was still coming but he had hoped it would have started more obviously by now. "We're hoping it takes off in the second half of this year as more and more people refix on to lower rates. Then it's more of a 2026 story now."
Scoop
5 days ago
- Business
- Scoop
Kiwibank's Latest Report Reveals South Pulls Ahead As Regional Economic Divide Widens
A new report from Kiwibank economists shows economic activity has improved across most of the motu - most regions have lifted, while three have gone backwards. The South Island continues to outperform the North, with Otago joining Southland as the country's top-performing regions. National economic conditions are improving; the average score has lifted from 3 out of 10 to 4, but the recovery remains fragile. Wellington lifts to a 3, up from last year's 2, but employment in the Capital is still down. 26 JULY 2025: The latest Annual Regional Note released by Kiwibank highlights a widening gap in regional economic performance, with the South Island continuing to outperform the North. While most regions have recorded gains, progress remains uneven. The national average score has lifted from 3 to 4 out of 10. Southland and Otago lead with scores of 5, driven by a building boom and a rebound in tourism respectively. In contrast, Northland, Taranaki and Gisborne saw their scores decline. Wellington and Auckland have experienced modest improvements. Kiwibank Chief Economist Jarrod Kerr commented: 'The economic tide is turning. Most regions have seen at least some improvements, but the recovery is far from even. Interest rates have come down, which is starting to ease pressure, but many households and businesses are still doing it tough.' SOUTH LEADS AS NORTH STRUGGLES Southland retained its top score of 5, supported by sustained construction activity. Otago also rose to 5, fuelled by a recovery in international tourism and an 8% lift in employment - the strongest in the country. Canterbury remains stable, with housing and infrastructure continuing to provide momentum. Northland, Taranaki and Gisborne all recorded declines in their regional scores. Taranaki saw the largest fall in employment nationwide at -8%. Gisborne saw the weakest housing market activity, and Northland reported a double-digit drop in residential building consents. Manawatū-Whanganui was the most improved region, with increased business activity and infrastructure investment contributing to its uplift. Wellington rose from a score of 2 to 3, although housing and employment indicators remain soft. Auckland also lifted slightly, supported by population growth. 'The contrast between regions is becoming more pronounced - the further south you go, the better the business climate. Southland has held its top score, driven by construction activity, and Otago has caught up off the back of a strong rebound in tourism.' 'On the other side of the ledger, regions like Taranaki, Northland and Gisborne are going backwards. These regions are grappling with falling employment, softer housing markets and softer activity across the board.' HOUSING AND LABOUR CONDITIONS STILL SOFT Labour market conditions remain mixed. Employment growth has slowed across most regions, with job insecurity continuing to weigh on household confidence. Taranaki saw the sharpest decline, with employment down 8% over the year. House price movements have been limited. Since the Reserve Bank began cutting rates, national house prices have risen just 0.5%. Transaction volumes are improving, but investor activity remains muted. Most regions are yet to see a convincing lift in property values. 'The housing market has remained largely locked in lateral moves. Since stabilising in early 2023, national house prices are up just 1.8%. Since the Reserve Bank began cutting rates in August, house prices have only lifted by half a percent - and in many regions, they're still flat or falling.' 'Employment growth is also weak. Job insecurity is dampening household confidence, and that's flowing through to the broader economy. The labour market lags behind the cycle, and we're still feeling that drag.' RETAIL STILL SUBDUED Retail sales remain below their average levels over the past decade in most regions, with soft household confidence continuing to weigh on consumption. Wellington recorded the steepest annual decline at a -3.3%, while regions like Waikato, Northland and the Bay of Plenty saw a slight improvement on last year. 'A wave of mortgage refixing is due off after the fall of interest rate. The shift to lower repayments should help improve household budgets, boost consumption and support the housing market, but we're not seeing that flow through yet. Consumers are still being cautious. They're rebuilding balance sheets, not rushing to the shops just yet.' 'Momentum is more likely to show up closer to summer, once rate cuts are fully felt and confidence continues to rise,' concluded Kerr.
1News
6 days ago
- Business
- 1News
South Island pulls ahead as regional divide widens — economist
New Zealand's regions are showing signs of recovery, but there is a growing economic performance divide between the North and South Islands, a new report from Kiwibank says. The Annual Regional Note, released on Saturday, showed that the South Island was continuing to outperform the North and that while most regions recorded gains, progress remained uneven. The national average score has lifted from 3 to 4 out of 10. Kiwibank chief economist Jarrod Kerr said the economic tide was turning. "Most regions have seen at least some improvements, but the recovery is far from even." ADVERTISEMENT Southland and Otago lead with scores of 5, driven by a building boom and tourism rebound respectively. Northland, Taranaki, and Gisborne scores declined. Wellington and Auckland lifted slightly, with New Zealand's biggest city supported by population growth. "The further south you go, the more optimistic people are," Kerr said. "So you think about Northland and Taranaki and Gisborne, they've gone backwards over the last year. And you think further south, you know, going to Otago and Canterbury, they're actually doing a lot better." He said the divide could become a "self-fulfilling prophecy" with people leaving places such as Auckland and moving to Christchurch. "It is more affordable and, these days, you don't necessarily have to be in the largest cities — a lot of people are working from home." Kiwibank chief economist Jarrod Kerr. (Source: 1News) ADVERTISEMENT Kerr said the housing market had remained largely "locked in lateral moves". "Since stabilising in early 2023, national house prices are up just 1.8%. Since the Reserve Bank began cutting rates in August, house prices have only lifted by half a percent — and, in many regions, they're still flat or falling." Labour market conditions were also mixed. Otago had the strongest employment growth in the country, up 8%, while Taranaki recorded the steepest employment drop at -8%. Retail sales remained subdued and below their average levels in most regions, with Wellington recording the steepest at -3.3%, while regions such as Waikato, Northland and the Bay of Plenty improved slightly on last year. Consumers were still being cautious, Kerr said, "They're rebuilding balance sheets, not rushing to the shops just yet." 'Time for the Reserve Bank to step on it' ADVERTISEMENT Kerr told 1News he would like to see the Reserve Bank "go from having their foot firmly on the brake, to putting it in neutral, to actually putting their foot on the accelerator". He believed the Official Cash Rate should fall from its current position at 3.25% to 2.5% to provide meaningful stimulus to the economy. "We think the risk, if anything, is that inflation falls too far and falls below 2% because the economy is so weak. So, job done on the inflation front, it's time to stimulate growth."
