Jenée Tibshraeny: GDP figures hit the sweet spot for Grant Robertson politically

June quarter GDP figures hit the sweet spot for Finance Minister Grant Robertson. Photo / Marty Melville

OPINION:

Just-released economic activity data for the June quarter broadly hit the political sweet spot for Finance Minister Grant Robertson.

With gross domestic product (GDP) rising by 1.7 per cent between the March and June quarters, the lift is decent enough for Robertson to legitimately talk up the resilience of the New Zealand economy against a backdrop of gloom and uncertainty globally.

But the rise isn't strong enough to single-handedly prompt the Reserve Bank to throw more cold water on the economy than it was already planning to, inflicting additional pain on mortgage holders.

The Reserve Bank, in its August Monetary Policy Statement, forecast GDP rising by 1.8 per cent in the June quarter.

So, while the 1.7 per cent lift came as a surprise to the market, which was expecting a rise of only 1 per cent, it doesn't change much for the Reserve Bank.

When it lifted the official cash rate (OCR) by 50 points to 3 per cent in August, and forecast the rate staying at a peak of 4 per cent through all of 2023 and a large part of 2024, it assumed GDP growth would be solid in the June quarter.

ANZ economists recognised this, saying, "While it might be tempting to put a better "momentum" story around these data, it's important to note that the Q2 [June quarter] GDP data was going to have to really be one out of the box before it was likely to become meaningful for the RBNZ's monetary tightening strategy.

"And with growth so close to the RBNZ's 1.8 per cent forecast, this result is firmly in the box."

"Firmly in the box" is exactly where Robertson would've wanted it – solid, but predictable and already factored into the Reserve Bank's policymaking.

BNZ economists also noted key domestic spending elements of the data, which the Reserve Bank can control, were softer.

Of course, GDP isn't the only data point the RBNZ looks at when it sets monetary policy. While June quarter GDP figures are unlikely to prompt it to change tack, other factors might.

Indeed, some economists argue inflation is becoming entrenched, so it's likely the RBNZ will need to do more to dampen soaring prices.

Other economists believe the RBNZ could be less aggressive and piggyback on moves larger central banks are making to control inflation. After all, their interest rate hikes strongly influence money markets, which affect New Zealand's mortgage rates (longer-term ones in particular).

Coming back to Robertson, he won't be able to get comfortable in the sweet spot the June quarter GDP figures have left him in.

If the RBNZ's forecasts are correct, the economy will come within an inch of a recession next year – election year.

Annual consumer inflation is also expected to fall to 4 or 5 per cent (from 7.3 per cent in the June quarter). While a slowdown would be good news, prices will still be rising from increasingly high levels.

It's hard to see people feeling good about their financial situations come election time.

The only thing that would make an economic slowdown palatable to voters would be an end in sight to the period of high inflation and elevated interest rates.

It might be in Robertson's interests to start warming people up to the reality that we can't have it all right now. This will be a hard narrative to sell for a Labour Party minister, given job losses will accompany the inevitable slowdown needed to lower inflation.