Jacinda Ardern blames economic slowdown on global conditions - and economist agrees

The Prime Minister is blaming an economic slowdown in New Zealand on global conditions, and an economist agrees - but Simon Bridges says the Government's responsible. 

Prime Minister Jacinda Ardern said in Parliament on Wednesday that GDP growth currently sits at 2.6 percent - but Kiwibank predicts it could drop to 2 percent in the middle of the year. 

BNZ economist Doug Steel has also warned that, while growth risk indicators might not be "flashing bright red just yet," the economy is moving towards slower growth. 

National leader Simon Bridges grilled the Prime Minister on the economy in Parliament on Wednesday. He said while New Zealand's purchasing power is higher than it's been for years, GDP per capita is low. 

"Why, in her view, in light of the strong terms of trade and rising exports, has GDP per person been flat for the last six months?" Bridges asked the Prime Minster. 

Ardern responded by pointing to international pressures. 

"When you look at what other countries are experiencing, particularly Australia, China, the EU, and the UK - [they are] in a particularly bad state.

"There's no doubt that the international trading environment is causing a change in investment confidence, and that impacts on us - undeniably that impacts on us."

Jacinda Ardern and Simon Bridges went head-to-head in Parliament over the economy.
Jacinda Ardern and Simon Bridges went head-to-head in Parliament over the economy. Photo credit: Parliament TV

Ardern said impacts on investment decisions and the uncertainty in the international environment "is changing confidence levels and it is changing investment decisions". 

Shamubeel Eaqub, an economist, agreed with Ardern that international pressure is playing a significant role, but said New Zealand is "overdue a downturn" anyway. 

"The New Zealand economy essentially peaked in the middle of 2016," he told Newshub. "I think we're overdue a slowdown - which is exactly what we're seeing."

"All of the indicators had been telling us that things were going really well, it was all picking up, and then we had a peak in the middle of 2016, and all of the indicators started to roll-over - particularly things like house sales in places like Auckland."

He said if the global economy slows or shifts rapidly, "then what we tend to see is a big impact on our exports, and a big impact on the financial market and our ability to access credit". 

Domestic slowdowns are "easy to manage", Eaqub said: "Because we can cut interest rates and increase government spending".

Shamubeel Eaqub, an economist, agrees with Jacinda Ardern that international pressure is playing a role in the economic slowdown.
Shamubeel Eaqub, an economist, agrees with Jacinda Ardern that international pressure is playing a role in the economic slowdown. Photo credit: The AM Show

He said the role of government is to "make sure they do the right thing - which is, if there is a slowdown in the economy, then they should be introducing fiscal stimulus, spending more money and supporting the economy". 

Finance Minister Grant Robertson came to the Prime Minister's defence in Parliament when she referred to global pressure, pointing to the NZIER Consensus Forecast published on Monday. 

The forecast said slowing growth in China "has the potential to weigh on demand for New Zealand exports, both directly from China and indirectly from Australia". 

It also said: "The domestic growth outlook remains positive, with upward revisions to forecasts for household spending and residential investment."

While it said business confidence had softened in New Zealand, "Overall, the growth outlook for the New Zealand economy remains solid."

Ardern said that reflected "decisions being made by this Government in 2018 and 2019, in particular focuses on stimulating the economy, investing in infrastructure, and making sure that our population has more money in their back pocket". 

Bridges suggested the only reason New Zealand was performing higher than the other countries Ardern had mentioned was because of population growth. 

Eaqub said economic growth at the expense of population increase was "not a new thing" and said it had been "happening for quite some time". 

New Zealand's population it set to reach five million this year. 

Newshub.

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