Ardern optimistic New Zealand economy can avoid recession

Prime Minister Jacinda Ardern is sticking with economists’ predictions that gross domestic product (GDP) won’t fall for the second quarter in a row to trigger a recession.

She also ruled out any more support for struggling Kiwis on top of what the Government has already announced.

It comes after recent GDP figures for the three months to March fell a seasonally-adjusted 0.2%. The figure was worse than forecasts from most economists of zero growth or a slight increase. It also followed a stronger December quarter, which ended with a 3% rise.

READ MORE: GDP fall a sign of ‘very tricky’ times ahead – Robertson

Ardern told Breakfast the figure was a reflection of a volatile environment and the fact exports were down a margin. Stats NZ reported that services exports remained “significantly affected by the pandemic and continued border restrictions”.

She acknowledged things were generally “tough” with the ongoing war in Ukraine and high inflation.

“Most economists are commenting at the same time they don’t expect that [drop in GDP] to come through in the second quarter.”

She added that for many who were finding it difficult, “sometimes those macro indicators aren’t a reflection of what it feels like in those moments”.

She said there were also factors at the start of the year that contributed to the economy contracting, including the Omicron outbreak that took people out of their workplaces and the lockdown in Shanghai which affected the Chinese market.

“There are other reasons to also have confidence in New Zealand’s underlying fundamentals. We’ve got low unemployment, low debt, and we have things like the border reopening which we know will make a difference as well.”

READ MORE: Unemployment rate stable, wage inflation increases

When asked if the Government would introduce further support for people in case the economy shrank again in the June quarter, Ardern wouldn’t commit to anything more than the Government’s slashing of the fuel tax from earlier in the year, the cost of living payment totalling $350 for people earning under $70,000 a year and increases to family tax credits from April.

Increases to the minimum wage, superannuation and other benefits also came into force in April.

But, in the months since April, the cost of food and fuel had continued to increase.

National had been criticising the Government for not providing tax relief as the cost of living soared.

Ardern said the Government had been told to be careful about the support it could give.

“A lot of the advice we’re receiving is that if we are not careful, we’re not targeted, we can make inflation worse.

“That’s why things like general tax cuts aren’t the answer because, A, they don’t deliver much to the majority of people who need a bit of relief and, secondly, they can make inflation worse.”

She said the earliest the cost of living payment could be rolled out was in August, but the reduction in fuel taxes would continue until then.

“We aren’t able to take the hard edges off entirely. Unfortunately, as I’ve said, we are constrained in what we’re able to do because we have to keep also investing in those other areas like our health system which is under significant pressure, like our education system.”

Ardern said inflation was expected to peak in the middle half of the year and then start to drop.

That meant, over time, wage growth would start outstripping the increasing cost of living, she said.

Craigs Investment Partners’ Mark Lister told 1News last week that a recession in New Zealand was “definitely possible”.

“Fifty-fifty absolutely. We just don’t know. It’ll come down to whether the inflation we’re seeing at the moment comes off in the next six to 12 months.”

GDP went up 5.1% through the year to March 2022.