New Zealand's economy has entered a recession: Business Editor-at-Large Liam Dann explains exactly what that means.
Video / NZ Herald
OPINION
News of the recession last week was good, not bad.
You’ll never hear a politician say that. They’d get slammed by the public and swamped with hard-luck stories that made them look callous and uncaring.
But I don’t care. I’ll say it.
This economic slowdown shouldn’t have come asa surprise and, frankly, if the choice is whether to rebalance the economy sooner or later - I’m in favour of sooner.
We are going through the process of removing demand from the economy to reduce inflation.
There’s no avoiding it. As ANZ economists put it on Friday, this is a “much-needed adjustment”.
The longer we let inflation run, the greater the risk that it becomes embedded in the economy and the longer the country is vulnerable to fresh economic shocks - like another natural disaster, a commodity price slump or a Wall St meltdown.
So, good! The economy has contracted. If the GDP numbers had shown a surprise lift in economic activity that would have been a bigger worry.
That would have put pressure on the Reserve Bank to keep lifting the official cash interest rate - risking a worse recession further down the line.
It now looks more like the RBNZ got it right in saying that the hikes are over.
Unfortunately, we can’t expect any politicians, from either side of the house, to be grown-ups about this.
Given the highly emotive nature of the word “recession”, National and Act couldn’t miss the opportunity to attack, even if that meant wilfully conflating the supply-side and demand-side problems in the economy.
I’m sorry if it seems pedantic but these things are different.
We don’t have an unemployment problem in this country, we don’t have a problem with a massive collapse of economic output.
We don’t have record numbers of businesses falling over. We don’t have record numbers of people defaulting on their mortgages.
What we have is a serious inflation problem.
The economy’s supply-side problems are still more serious than its demand-side problems.
It’s a delicate balancing act. There is a risk that the Reserve Bank overdoes it and we end up in a deep recession.
But the one we have just had was not that.
Anyone suggesting it was either can’t remember what things were like in 1991 or 2008 or is conflating a whole bunch of different issues.
It is the high cost of living that is making people feel poorer and grumpy about the economy.
I strongly suspect it is also down to a bunch of social issues that stem from the disruption and dislocation of the pandemic.
Let me be really explicit. This is not a party political broadcast for the Labour Party. They are in trouble.
There is no shortage of examples of incompetence, poor spending decisions and lack of leadership.
What’s happened in education this year is an absolute disaster in my view. After all the disruption of the lockdowns, we desperately need to get kids back in the habit of going to school.
We have not done that. The ongoing industrial action has meant another stop-start year of disrupted learning.
The kids from the most marginal homes have stopped turning up. We’re going to pay for this in years to come.
I think that’s on the Government.
You can decide to cut them a break on the historic nature of the pandemic challenge. Or not. I don’t care.
But what annoys me is seeing New Zealand’s big economic challenges being distorted and misrepresented and inflated with a whole bunch of other very different social issues.
Finance Minister Grant Robertson blamed the recession on the cyclone effect. Technically he has a point, but it was a weak defence.
You’d think he might have grabbed the chance to talk about the silver lining of the recession, beating inflation, rebalancing the economy.
But he knows he can’t.
When former Australian Prime Minister Paul Keating was Treasurer back in 1990 he tried that line, saying: “The most important thing about that is that this is a recession that Australia had to have.”
He was absolutely right, but it did not play well with the public.
Former Australian Prime Minister Paul Keating speaking at the Knowledge Wave Conference at the Sheriton Hotel in Auckland. Photo / NZME
It’s one of the great flaws in a modern democracy that politicians have to follow a script that panders to popular narratives even if they are completely at odds with what they really know to be true.
They all have to pretend they prefer to sausage rolls and pies to sashimi or a slow-cooked ribeye, as if having good taste is some kind of elitist disease.
And it all gets much worse in an election year. Suddenly being relatable becomes much more important than being competent.
This is the tyranny of the focus group and the median voter, I guess.
It doesn’t really matter when it’s confined to silly and frivolous stuff, like parading around Fieldays in gumboots.
But our economy is too important. We need to harden up and deal with it bluntly and honestly regardless of whether it fits a popular narrative.
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.
