Economist warns we're driving towards a recession

A prominent economist says the New Zealand economy should be hooning along the motorway, but has the handbrake on instead.

Economic growth has slowed to 2.5 percent, and Cameron Bagrie of Bagrie Economics says it's looking like getting worse - possibly even getting dangerously close to recession territory. 

"It's down to 2.5, it's on track for two," he told The AM Show. "The danger for 2020 is growth will have a one in front of it. If growth has got a one in front of it, you're going to see unemployment moving up - that's going to make 2020 pretty interesting in regards to the election."

With migration still fairly high and the working-age population growing, Bagrie says we should be at about 3 percent. 

"Your speed limit's 100km/h, we're driving around 80. In the June quarter, I think we're down to 70. Back half of this year, we're down to 60."

The number one thing to blame is a lack of capacity - businesses just "cannot get the skilled staff".

The other, he says, is uncertainty around Government policy. Bagrie said while business confidence indicators can be ignored since they're so "politically biased", other measures do in fact correlate with economic performance.

"What firms are saying about their own activity expectations, what they're saying about hiring, what they're saying about investing - they're lukewarm. In fact, they're pretty stagnant.

"The Government's got to tidy their act up and really start to show the ability to execute. This is the 'year of delivery' - well, the year of delivery is not going too well."

The highest annual GDP growth achieved since the global financial crisis was 4 percent in 2015, according to Statistics NZ. It was headed downwards when Labour and NZ First defeated National in 2017, recovered slightly through the first half of 2018 before starting to slide again.