Liam Dann: What Recession? Local economists pick good growth

The loose consensus seems to be that GDP growth is going to be less flash than previously expected next year. But it's not crashing through the floor either, Liam Dann writes. Photo / Bret Phibbs

The verdicts are in and despite what Forbes contributor Jared Dillian says, there are no economists picking a recession for Jacinda Ardern's Government.

Most of New Zealand and Australia's major economics teams have now reassessed their economic forecasts to factor in the effect of the new Government.

The loose consensus - bearing in mind no two economists ever agree – seems to be that GDP growth is going to be less flash than previously expected next year.

But it's not crashing through the floor either. Growth forecasts between 2.4 per cent and 3.2 per cent for 2018 still look pretty good by international standards.

And most economists forecast GDP to pick up steam again through 2019 and 2020. Some like Westpac and Goldman Sachs see it exceeding their earlier forecasts by then.

The extent to which Government policy is being blamed for a slowdown next year varies.

Broadly, there's a belief that the more proactive the Government is about reducing immigration and stifling the housing market, the tougher 2018 is likely to be on the economy and the crown accounts.

But there are all sorts of conflicting tensions that economists have to juggle to reach a net result.

A lower dollar is a boost for exports and tourism but bad news for imports. Will prices for New Zealand's key commodity exports – dairy, beef and lamb stay elevated?

Will oil prices surge back?

Will global inflation and interest rates stay subdued?

And when will stimulus from the Government's increased social spending start to kick in?

Most seem to think that'll take a while to flow through the economy – hence the boost from 2019.

Regardless, the net result of all this calculating is that economists from all the major banks as well as others like Capital Economics and Goldman Sachs think Treasury and Reserve Bank predictions for next year now look over-optimistic.

Unfortunately for the Government, those pre-election Treasury forecasts were used to budget for policy promises.

If real economic growth falls short that means the tax take is likely to be lower and the new Government may have to make some tough calls – either delaying parts of its spending programme, or borrowing more.

Again, no one is saying that the sky is about to fall in. Consider the gloomy scenario put forward by ANZ's Cameron Bagrie.

He picks the Government will have to borrow about $6 billion more than they committed to in the campaign, if they stick to all their spending promises.

That might be a big deal politically but economically it rates a shrug of the shoulders from Bagrie.

Taking on that much extra debt would "still leave net debt stable at 23-24 per cent of GDP," he says.

As usual, politics is polarising.

How people interpret the near-term economic outlook seems to depend on whether you think we're still in the honeymoon phase of the electoral cycle – or whether you think this is the bit where everyone freaks out about socialism by stealth.

Apart from a few random think pieces though – written by offshore commentators who can't quite believe New Zealand changed Government with the accounts in such good shape – most of the economic and financial community still seems pretty relaxed about the new regime.