Here are seven issues that look set to keep economists and commentators busy.
Unemployment
The next focus for
concern will be unemployment. Job losses are on the rise. Headlines about business closures, and restructuring seem more frequent every week.
We get labour market data on November 6. It is expected to show unemployment rising to about 5%. The Reserve Bank is forecasting it will keep rising to 5.4% by March 2025 before peaking and easing back to 5.1% by March 2026.
Looked at in isolation that wouldn’t be such a terrible result, given the damage that the pandemic, border closures and lockdowns did to our economy.
It would be a better result than after the Global Financial Crisis when unemployment rose to 6.6% and stayed elevated above 5% until 2015.
It would certainly be a much better outcome than after the economic reforms of the 1980s and early 1990s, which took unemployment above 11%. And it would be better than after the Asian financial crisis in the late 90s when we saw unemployment rise to 7.9%.
But none of this is to suggest that we shouldn’t worry about people losing their jobs. There’s a terrible social cost to high unemployment.
We need an economy that is creating jobs and opportunity. But for that to happen we’ll need to see it start growing again.
Economic Growth
We don’t see third-quarter gross domestic product (GDP) data until December 19, so we’ll probably get gloomy headlines declaring another recession just in time for Christmas.
But that will be old news. The third recession in this cycle of inflation and monetary policy tightening has likely already happened – with the economy shrinking in the second quarter and predicted to do so again in the third quarter.
You’d hope the earlier and bigger-than-expected rate cuts that started in August might have lifted consumer sentiment enough to see us scrape into growth territory in this fourth quarter. But who knows?
Beyond that, economists aren’t picking much growth through 2025. In a release last week, Infometrics chief forecaster Gareth Kiernan revised his estimates upwards to a still paltry annual rate of 1.9% by the end of 2025.
He predicts a stronger performance in the following year, with annual growth reaching 2.7% by mid-2026. That would be a solid result but hardly transformational for New Zealand.
Productivity
If we want to achieve transformational economic growth (ie stronger than 3%) then we really need to boost our productivity rate. This is a perennial worry for New Zealand I know. But we can’t avoid it.
A buoyant housing market and strong commodity prices will only take us so far.
Prime Minister Christopher Luxon talks a big game on this one so I assume it will be near the top of his list. We’re seeing some regulatory changes that might help boost productive output. He has also promised we’re going to see a boost in foreign direct investment that could offer businesses an adrenaline shot of capital. It looks like we’ll see a new policy around overseas investment early in the new year.
Longer term, the Government will be hoping policy changes in education and infrastructure investment add to our productivity. We’ll see.
But unless we can boost productivity, pay rates in this country will continue to lag behind Australia.
If we want to turn around the appalling rate at which Kiwi citizens are leaving this country we will need to change that.
Migration
Fewer migrants are arriving and more Kiwis than ever are leaving and, if the trend continues, economists forecast net-zero migration next year.
In some respects, this trend is more of a symptom than a cause of economic worries. Lower net migration might even force a bit of productivity growth if it means business has to invest more in research and development and new technology rather than relying on cheap imported labour.
But conversely the brain drain – and the difficulty attracting specialist engineers and tech workers from overseas – undermines that process.
More than 81,000 New Zealanders departed long term in the year to August.
We certainly can’t afford to keep losing skilled workers in those numbers and stay competitive.
Debt (and deficit)
There’s a lot to unpick when it comes to New Zealand’s balance sheet with the world. But we are deeply in debt however you look at it.
Net core Crown debt rose by 13% over the year to $175.5b – 42.5% of GDP.
Treasury accounts for the year to June 30 showed the Government’s books sank further into the red. The operating balance before gains and losses (obegal) deficit deepened by $3.4 billion in 2023/24 compared with the previous year, to $12.9b. It was also $1.8b worse than the Treasury forecast at the Budget in May.
Finance Minister Nicola Willis called the numbers “sobering”. They just made me want to drink more.
The rest of the world
Worrying about the state of the world is easy and a bit of a cop-out because we can’t do much about it. But worry we must.
Despite the heartbreaking conflict in the Middle East and the almost comical chaos in the United States, New Zealand’s primary focus of concern remains the Chinese economy.
Our major export market is in the doldrums. A property market slump has seriously dampened consumer demand. It has demographic issues, with low population growth, and it is teetering on the edge of outright deflation.
Recent monetary policy stimulus provided a temporary lift but the world is now waiting to see if Beijing will unleash a major fiscal stimulus
Outside China, the US and Middle East situations both present economic risks.
A wider conflict with Iran could cause another oil price shock.
And the US tech sector still looks precariously overvalued and the threat of an AI bubble bursting remains real. It’s not clear how directly exposed New Zealand would be to that but we sure don’t need a Wall Street crash right now. At the very least it would make a mess of our KiwiSaver accounts.
The economic system (or is it us?)
What if all the economic data lands in the right place and people still aren’t happy?
The US is more or less in that position now.
Policymakers have pulled off a soft landing. Inflation is below 3%, and interest rates are falling – but the economy is still growing and creating jobs. The unemployment rate is below 5%.
But clearly it is not a happy nation right now.
What gives? If all the numbers look great in theory perhaps we’ll be forced to face the biggest worry of all. Is the system broken ... or is it us?
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
