Reserve Bank economists had forecast the economy would contract 0.3% during the June quarter, while retail banks were predicting closer to 0.5%. <\/p>\n
The reality was far worse, a broad decline in New Zealand\u2019s GDP with 10 of 16 industries showing a slump. <\/p>\n
The economy should be growing, not shrinking, and shrinking at such a scale is very bad indeed. Voters are telling pollsters they feel the economy is on the wrong track \u2013 and you can see why, on a per capita basis, GDP fell by 1.1% in the June quarter.<\/p>\n
But if the economics are bad, the politics are even worse. We can now inter Prime Minister Christopher Luxon\u2019s year of growth alongside Dame Jacinda Ardern\u2019s \u201cyear of delivery\u201d in the mausoleum of scene-setting political clangers.<\/a><\/p>\n Willis, who began the year with the new economic growth portfolio, must now face the fact the economy is no larger after her first two quarters in the role.<\/p>\n I was the one who broke the bad news to Luxon, bumping into him after a late morning interview I had in the Beehive. He hadn\u2019t yet seen the figures, then just minutes old. It\u2019s not the sort of bad news you ever expect to deliver to a Prime Minister.<\/p>\n During a long press conference in Willis\u2019 office, it was clear she is convinced her strategy is the right one and she will not be changing course: there\u2019s no additional stimulus, no additional fiscal help from the Government. As the Reserve Bank continues to cut rates, businesses and households are going to be the ones pulling themselves up by the economic bootstraps.<\/p>\n She also offered plenty of excuses, some of which stack up and others that don\u2019t. <\/p>\n The economy, in the first quarter of the year was growing, and growing faster than some forecasts. True. In fact, in a note published Thursday, ratings agency Moody\u2019s described the late 2024 and early 2025 recovery as \u201cgalloping\u201d.<\/p>\n And it sort of was. Inflation largely slain, Kiwis began borrowing and spending as the Reserve Bank\u2019s OCR cuts gave them the licence and the means to do so \u2013 a textbook Tory economic recovery. <\/p>\n It was Trump\u2019s tariffs, Willis said, that caused the economy to have \u201cthe stuffing knocked out of it\u201d.<\/p>\n Fair cop, every major forecaster revised down their forecasts after the Trump tariff announcement. Uncertainty over the tariffs, their size and their impact not only on exports to the US, but on the global economy, has curtailed businesses\u2019 desire to borrow and invest \u2013 and it\u2019s very difficult for a borrow, invest, spend recovery without confidence that tomorrow\u2019s trading environment will not be radically different from today\u2019s.<\/p>\n ANZ\u2019s May business confidence survey, taken after the first round of tariffs, showed our own activity, profitability and, crucially, investment intentions had evaporated. <\/p>\n Quarter two was always going to be tough but the question is, should it have been this bad? It\u2019s a question you can ask about this Government\u2019s entire economic and fiscal strategy. The post-Covid hangover was always going to be really rough, but this Government must surely ask itself why it refuses to pop even a single Panadol. <\/p>\n Construction activity fell 1.8% in the latest quarter, taking the decline to 9.4% over the year. <\/p>\n In light of that massive decline, was it wise to scale back the forward programme of K\u0101inga Ora building if only to keep the construction workforce from haemorrhaging to Australia?<\/p>\n No, according to Willis, who is sticking to her guns. She maintains the Government\u2019s fiscal policy is stimulatory, and by a basic definition, it is. Treasury expects a $15.6 billion deficit this year \u2013 money that\u2019s borrowed and funnelled into the economy to keep it alive. <\/p>\n \u201cWe are stimulating the economy by definition,\u201d Willis said.<\/p>\n \u201cI highlight this because, frankly, it doesn\u2019t come through in your reporting, the Government is borrowing at very high levels right now \u2013 we are running an annualised deficit bigger than many countries around the world.\u201d<\/p>\n It\u2019s indicative of how much politics has changed that a centre-right Finance Minister is now complaining that the media gave significant coverage of her Government\u2019s enormous borrowing.<\/p>\n It\u2019s a marked change from the election and the coalition\u2019s first year in office, in which Willis\u2019 great economic test was whether her tax cuts would be excessively stimulatory \u2013 now the great debate is over whether they\u2019re stimulatory enough. <\/p>\n The Government is boxed in.<\/p>\n A finance minister shouldn\u2019t drop everything and change tack on the back of one quarter of months-old data. The data is noisy, and prone to revisions, meaning the slump may not be as bad as we think.<\/p>\n The question we should be asking is not what Willis should be doing, but what she and the Reserve Bank should have been doing in the past. <\/p>\n The bank\u2019s catalogue of sins is long: shouldn\u2019t have printed so much money, shouldn\u2019t have been so late to hike, shouldn\u2019t have hiked so much, should have cut quicker, should have cut steeper, shouldn\u2019t have stopped cutting in July. <\/p>\n Willis\u2019 predicament is more challenging. Even if she wanted to do something, there\u2019s very little room to move. <\/p>\nPrime Minister Christopher Luxon\u2019s year of growth pledge now belongs in the mausoleum of scene-setting political clangers. Photo \/ Mark Mitchell<\/p>\n
Damien O’Connor was the only Labour MP to ask Nicola Willis a primary question on the latest economic figures. Photo \/ NZME<\/p>\n