Editorial: Signs of economic recovery offer fair winds for new Government

Prime Minister-elect Christopher Luxon and Nicola Willis about to speak to media at Parliament. Photo / George Heard

EDITORIAL

The post-pandemic imbalances in the New Zealand economy are starting to work themselves out - finally.

For many ordinary Kiwis, things still feel tough and will continue to feel tough for several months as we wait for interest rates to peak and inflation to ease.

But data in the past few weeks point to better times ahead. The economy is sticking to the script and the odds on a soft landing are growing.

All of this looks like fair winds for the incoming Government. For the outgoing Labour Party and its supporters, it may seem like cruel timing.

Since mid-September, the economic numbers have started to beat the expectations of economists and markets.

The good run started with the narrowing of the Current Account Deficit - to 7.5 per cent of gross domestic product (GDP) in the second quarter, from 8.5 per cent previously.

While that’s still not a great number, the direction of travel was reassuring, especially for the international ratings agencies that influence our borrowing costs.

The Current Account data was followed by better-than-expected GDP numbers.

That data (with revisions to previous months) revealed that not only was the country no longer in recession, it never actually was. At 0.9 per cent for the three months to June 30, GDP growth was twice what the market expected.

It was underpinned by record immigration which, according to figures released this month, is still running at a record annual rate - a net gain of 110,000 in the past year.

Meanwhile, inflation is starting to slide away. Economists were pleasantly surprised by the third quarter, considering it included a big spike in petrol prices.

At an annual rate of 5.6 per cent - versus market expectations of six per cent - most now think the Reserve Bank can safely avoid hiking the Official Cash Rate again.

That’s good news. It won’t feel so good at the supermarket, bearing in mind that the price rises of the past two years are cumulative.

But it is all moving in the right direction.

Even dairy prices are on the mend. After a worrying slump to five-year lows in August, there has been a series of four price lifts at the Global Dairy Trade auction.

China still has serious issues with its property market and long-term structural issues, but consumer demand is finally bouncing back, and dairy demand with it.

Unless we get hit with another big external shock (another oil price spike remains a risk), New Zealand’s economy appears to finally be on the road to recovery.

To the extent that the economy drives voters, the timing of the election didn’t land well for the incumbent Labour Government.

If it had fallen six months earlier, its cost of living subsidies would still have been in place and the full pain of interest rate hikes would have been yet to bite.

If it had fallen six months later, New Zealanders might have been able to see the finish line for this tough economic cycle.