Red lights are flashing for the New Zealand economy, the National Party says after the latest Gross Domestic Product (GDP) figures confirmed the country was in a recession.
The ACT Party claims the Government’s taken a “buy now, pay later” approach to the economy, while the Greens argue the figures show the need for its newly unveiled ‘Income Guarantee’ plan.
The Finance Minister, however, says the New Zealand economy has shown resilience against the double-punch of the Auckland floods and Cyclone Gabrielle earlier this year.
“Today’s outcome fits the definition of a technical recession by the barest of margins,” Grant Robertson said.
“But the resilience of the New Zealand economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term.”
The figures released by Stats NZ on Thursday morning reveal New Zealand’s GDP fell 0.1 percent in the March 2023 quarter, following a 0.7 percent fall in the previous quarter. Two consecutive quarters of negative growth signal a technical recession.
The contraction in the March quarter was driven by a downturn in business services, including management consulting, advertising and engineering design. However, it was also impacted by the North Island weather events and teacher strikes.
“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services,” said economic and environmental insights general manager Jason Attewell.
“Fewer teaching days led to falls in primary and secondary education services.”
Robertson, the Finance Minister, said the Auckland Anniversary floods and Cyclone Gabrielle had a significant impact on the economy, with estimates of hundreds of millions of dollars of lost production and activity across several sectors.
However, he said the economy had been helped by export growth, tourism, returning international students, and investment in the recovery from the weather events.
“New Zealand can handle these testing times and grow out the other side,” said Robertson.
“Record numbers of people are in work, and wages are rising faster than inflation to help households with cost of living pressures. Tourists are returning in greater numbers, overseas workers are filling vacancies, and our public debt levels are among the lowest in the world. Our Budget in May also invests in skills, research and development and infrastructure to grow a more productive economy.”
Robertson said there are positive signs.
“Our focus is on how we can support growth in the economy. Just yesterday we announced that New Zealand’s food and fibre sector is on track to set a new record high, with export earnings to hit $56.2 billion by 30 June 2023, 2.3 percent higher than projected.
“The Government’s export strategy and securing of new Free Trade Agreements is working, with forecasts predicting primary sector export growth to $62 billion by 2027.”
But National’s finance spokesperson Nicola Willis said the confirmation of a recession meant “red lights are flashing for the New Zealand economy”.
“The New Zealand economy is now incredibly fragile. Excessive inflation, high-interest rates, a severe balance of payments deficit and now recession: this is a dangerous combination that threatens New Zealanders’ livelihoods,” Willis said.
She threw the blame on the Government, which she claimed had “mismanaged the economy”.
“Labour’s choice to spray the money hose with wild abandon with too little care for results, to so slowly re-open our borders and to ignore the pleas of productive businesses laid-low by a rolling maul of red-tape have made our predicament much worse than it needed to be.
“This recession is a red-light warning: the time for cavalier big-spending, anti-business, anti-growth policies is over.”
David Seymour, leader of the ACT Party, said the Government had been irresponsible by “putting the economy on Afterpay”.
He said both Government spending and net core Crown Debt had ballooned since Labour had taken power. This period included spending and borrowing by the Government for the COVID-19 response.
“Grant Robertson’s buy now, pay later approach of flooding New Zealand with borrowed money is condemning future generations of New Zealanders,” Seymour said.
“Part of Robertson’s grand illusion is an Afterpay economy, but it couldn’t hide the facts that have led to New Zealand’s weakened economy.”
The Green Party said the GDP figures showed it was time for its ‘Income Guarantee’ policy announced on Sunday.
It would guarantee all New Zealanders a weekly income of at least $385, something paid for with a new wealth tax, a higher corporate tax rate, a new trust tax and a new top-income tax rate.
“We know that a recession will hit lower-income New Zealanders who spend the majority of their income covering the essentials like food and rent the hardest,” said the Greens’ finance spokesperson Julie Anne Genter.
“The time is now to lift every single family out of poverty through our Income Guarantee and to pay for it with a fair tax system.
“Recessions hit low-income people hardest because they have smaller savings and tend to be in more precarious employment. Many of these people are the essential workers who shouldered the cost of getting through the pandemic, and are now carrying the bill for the recovery.”
The Reserve Bank has warned Kiwis to cool their spending over the past year to help with bringing inflation rates down.
Reserve Bank Governor Adrian Orr last year admitted the central bank was deliberately engineering a recession to slow spending.
The Consumer Price Index (CPI) for the March quarter was 6.7 percent, down slightly from a peak of 7.3 percent in June last year.
The Official Cash Rate (OCR) was hiked 25 basis points to 5.5 percent in May, with the Reserve Bank saying it would need to remain at a “restrictive level for the foreseeable future” to combat inflation.