Editorial: Soft landing? Economy likely to leave voters hanging in October

Economic data is a political Rorschach test at the best of times. Illustration / 123rf

EDITORIAL

The economy, as much as it ever does, is finally doing what it is supposed to.

After the roller coaster ride of an unprecedented pandemic, the data is once again landing largely in line with the forecasts.

The economists are getting it right again.

This week’s labour market data landed in keeping with expectations, adding to evidence that the economy is slowly grinding back into balance.

Unemployment ticked up slightly, with bigger rises in the under-utilisation rate and falls in private-sector wage growth.

This is the path that the Reserve Bank has prescribed.

Higher interest rates will put the squeeze on the economy until inflation is back in its box - between 1 and 3 per cent.

The unfortunate side-effect is that unemployment will rise to between 5 and 5.5 per cent.

That’s still moderate (in historic terms), but does mean between 50,000 and 100,000 people will likely lose their jobs in the coming year.

Debate amongst economists now centres largely on the timing of things.

Some think the Reserve Bank will need to hike the Official Cash Rate one more time to ensure the last, sticky, domestic inflation has been beaten. Others think the Bank has done enough.

Illustration / Rod Emmerson

Either way, there is a consensus about the direction of travel, which is back towards neutral monetary policy settings in 2024.

That’s reassuring.... on paper.

But whether we should be happy with the state of things for the next 12 months is another matter.

Economic data is a political Rorschach test at the best of times. If we only listen to politicians, we have a choice between seeing the economy as a recessionary mess of debt and inflation or as a benign, low-unemployment, high-wage, wonderland.

In reality, it is all of these things and how we experience it depends a lot on our age, employment and outlook.

One thing is for sure, nothing will be resolved by October 14. We’ll be heading into the election with inflation still high and unemployment still low.

We get just one more set of GDP statistics, which is expected to show a bounce out of the recession.

But the verdict on whether the Reserve Bank and Government have pulled off a so-called “soft landing” won’t be in.

Perhaps it won’t matter in the end. The ambiguity of the economy is starting to fade in political significance.

Those feeling grumpy about the economy now will probably still feel grumpy by the time they vote.

Many feel the Government borrowed too much and delivered too little during the pandemic. Others feel it was necessary to fund the measures that kept Kiwis safe until Covid vaccines arrived.

A percentage point here or there on key economic data is unlikely to shift those views now.

Issues such as crime, infrastructure and stability of the major party leadership teams are moving on to centre stage as the campaign heats up.

With the economic trajectory mapped out for the foreseeable future, look for the major parties to focus on longer-term policies to boost economic growth and productivity.