Economic slowdown looming as Government reshuffles projects - Infometrics

Economic slowdown looming as Government reshuffles projects - Infometrics
Photo credit: Dan Satherley/Newshub

Economic development agency Infometrics is warning New Zealand's economic growth is slowing in the short-term - and it's blaming Government policy.

But it says the lack of short-term spending and the resultant slow-down will be counterbalanced by faster growth in the medium-term, once Government projects take off.

With the Government reallocating spending, a short-term "hole" in investment spending looms. That will cause New Zealand's economic growth to slow, Infometrics says.

Informetric's forecasts have growth declining to 2.4 percent per annum (pa) by the end of 2018, before slowing further to 2 percent in 2019.

That could pick up to an average of 2.1 percent pa between mid-2020 and mid-2023 - a stronger-than-expected performance.

Infometrics forecasts the economic slowdown will create a huge decrease in immigration. Net migration will drop from 68,900 to 17,000 by early 2021, it says.

Uncertainty in the housing market and a change in infrastructure priorities from roading to rail will create a slump until projects pick up again, Infometrics found.

"The dumping of major roading projects in favour of rail and public transport initiatives will create a near-term hole in Government investment," says Infometrics chief forecaster Gareth Kiernan.

"It is possible that some of the slack might be picked up by infrastructure projects as part of the Provincial Growth Fund, but the slow wheels of government mean it could be 2020 before investment spending really recovers."

He said housing developers are cautious, as the change in Government created areas of uncertainty.

And Kiwibuild may not be the saviour the Government would hope it is, Infometrics said, claiming its boost will be "smaller and more delayed… than the Government has suggested".

"We are not arguing that some of the changes being introduced by the Labour-led Government, around transport policy, housing, or migration, are not necessary or well-intentioned," says Mr Kiernan.

"But it is becoming clearer that the transition phase could result in a less buoyant performance by the economy over the next couple of years."

The National Party says the Government's poor policies are "dismantling New Zealand".

Worse is to come, Opposition leader Simon Bridges warned.

"This forecast doesn't take into account the Government's employment law changes, and this week's announcements around oil and gas and irrigation funding that will worry investors and slow down regional New Zealand," Mr Bridges said.

"The world economy is growing faster than it was last year. We should be growing more quickly, adding more jobs, and seeing wages rise."

Finance Minister Grant Robertson told Newshub its policies will promote more sustainable growth over time.

"High headline GDP growth is not an end in itself, and we must make sure that our environment and communities don’t suffer just for the sake of headline growth numbers," Mr Robertson told Newshub.

"Economic growth is a means to an end - greater wellbeing and higher living standards for all New Zealanders, which is at the heart of this Government’s economic plan."

He said the Government plans to invest $42b in new capital over the next five years.