How the NZ economy is like a bathtub: An economist explains

The New Zealand economy is sliding down the side of a bath and risks getting stuck crawling along the bottom for a while, according to a prominent economist.

Cameron Bagrie's assessment of the current situation follows the release of ASB's Quarterly Economist Forecast on Monday morning. The bank says it's looking increasingly likely there won't be a rebound in the next 12 months, after the recent slowdown in growth. 

"Global prospects are for the slowest growth since the global financial crisis, and the risks have risen sharply recently," said ASB chief economist Nick Tuffley. 

"Donald Trump has slammed further tariffs on China, reducing the chances of a ceasefire anytime soon. Meanwhile, newly-elected UK Prime Minister Boris Johnson is ordering 'Exit' signs in bulk to illuminate his negotiating stance with the EU. 

"The last thing the global economy needs is a bad hair day that a comb-over won't fix," he added, taking a shot at the duo's bizarre hairstyles.

At home, Tuffley points to uncertainty over Government policy and low capital spending for the fall in GDP growth over the past few years. We're currently at 0.6 percent per quarter which isn't historically bad, but down from the post-crisis heights of five years ago.

"The challenge is that we need more investment to improve our becalmed productivity, and deliver the strong economic and wage growth that is key to long-term prosperity."

Talking to The AM Show on Monday, Bagrie also singled out productivity as the handbrake on our economy.

"The unemployment rate's down at 3.9 percent. You talk to any firm out there at the moment - getting skilled staff is their biggest economic problem. That's a problem, but it's a nice economic problem to have. 

"If we get reasonable growth in the labour force, working-age population - because migration is still strong - plus we get a bit of productivity growth, we can probably kick things up from 2 to 2.5 percent, to 3 percent. 

"But that's about as good as it's going to get. But that's on the assumption we're going to get decent productivity growth, but that thing's still missing in action."

Cameron Bagrie.
Cameron Bagrie. Photo credit: The AM Show

Bagrie dismissed the recent fall in business confidence as a "politically biased indicator" he doesn't even bother to look at.

"But there's a lot of other economic measures out there - we look at firms' own activity expectations and employment investment intentions, and they've been lacklustre for the past six to 12 months."

Bagrie compared ASB's view to "a little bit of a hand basin".

"We're sliding down one side of the hand basin... but they're actually forecasting us to pick up on the other side over the coming 12 to 18 months. It's not going to be strong growth, but it's going to be of the solid variety."

While his assessment swaps the basin for a bath.

"We'll come down one side, and we could be crawling along the bottom for a while."

bath
This looks like it would be bad if it happened to the NZ economy. Photo credit: Getty

Tuffley's suggested fix is spend and invest, particularly with interest rates headed towards negative territory.

"The Government could line up targeted welfare spending/tax cuts aimed at giving the economy a cyclical boost. The country is also crying out for infrastructure and policies that would jump-start productivity.  

"With Government debt low and its borrowing costs even lower, the Government is well-placed to lend a hand, if needed."

Newshub.

 

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