Economic commentator Bernard Hickey warns the conditions that fuelled those past recoveries have changed, and relying on history repeating itself could be a costly mistake.
Speaking on The Front Page podcast, Hickey says: “The trouble is this time around, for four years now, prices have been flat or falling, and they’re falling again.”
Hickey believes Treasury’s economic optimism is misplaced, arguing its modelling has failed to keep pace with changes in the economy.
“Treasury haven’t kept up with the changes in how our economy has worked, and they have a mental model which says an economy is full of consumers and businesses who respond to things like interest rates and the exchange rate.
“Those models are wrong.”
Hickey says Treasury has forecast a rebound in consumer spending and in business investment, “but we haven’t seen it for three years. They’ve been wrong for three years”.
“They were forecasting 200,000 jobs growing for years and years, hasn’t happened. They’re forecasting it again. So why do we trust them or believe it this time around?”
When a government reduces its share of spending in the economy, Hickey says the private sector needs to step forward to bridge the gap.
“They assumed rightly between 2000 and 2020 that [the private sector] would, but that was six years ago.”
Alongside a lacklustre housing market, Hickey says there are other pressures making an imminent economic recovery even less likely.
“Higher interest rates, higher energy costs, costs of living, this is really dampening down on the consumer and it means that as the Government pulls back, there’s nothing to go into the gap.”
Hickey says the New Zealand economy always feels good when the housing market is thriving, but now we’re experiencing what happens when the same market falls.
“It’s brutal on the way down. Feels great on the way up. It’s like the worst type of rollercoaster, you know? Whee! And then you throw up on the way down.”
Listen to the full episode to hear more on:
Why Hickey believes Wellington is “ground zero” for New Zealand’s economic struggles.Why politicians are reluctant to tackle the growing cost of New Zealand Superannuation.The role health and social services play in keeping New Zealand’s economy moving
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5pm.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.