Monday, May 29, 2023

Brian Easton: The Economic Runup To The Election.

The Treasury released its budget economic forecasts. What do they say about the economy over the next four months?

Let me begin me with an irritation. One post-budget headline was ‘Treasury optimistic over recession risk in Budget 2023'. Treasury being optimistic is almost an oxymoron. They fire down the centre.

It is true that Treasury has lifted its forecast of economic activity (GDP) a little since its December 2022 exercise, reflecting stronger migration and tourism and the rebuild from the cyclones. Even so, it expects GDP per capita to fall fractionally between the June 2023 and June 2024 years. The next year is going to be tough, with some quickening of economic activity in the middle of 2024.

Moreover, while Treasury does not forecast the fans showing the degree of uncertainty in the forecasts, it provides guidance about its assessment of upside and downside risks, concluding the latter are stronger. The change of outlook since December 2022 is modest.

I usually evaluate an economic forecast by first looking at the underlying trend and then at the short-term pattern over that trend. However, this column has the more limited focus of the outlook through to the next election, which is just 20 odd weeks from the column filing.

Statistics New Zealand publishes economic data most working days; here I report those items which may appear on the front page rather than being relegated to back pages, if mentioned at all. (Professional economists will pay them more attention.)

May 18: Budget which includes publication of the Budget Economic and Fiscal Update 2023.

May 24: The Reserve Bank increased the Official Cash Rate for, 5.25% p.a. to 5.5% p.a. (The Treasury does not forecast mortgage interest rates.) This is consistent with the Treasury forecast of the 90-day interest rate (which is important for its short-term borrowing) rising from 5.0% p.a. in March 2023 to 5.3% p.a. in June 2023. (Treasury’s forecasting team has not inside information about the RBNZ decisions.)

June 15: SNZ: Gross Domestic Product for March 2023. The data jumps around, but the Treasury expects the March figure to be a fraction higher (0.3%) than the December 2022 figure and to grow at about this rate throughout the rest of the year.

July 1: A number of the budget initiatives – such as free prescriptions – phase in on this day, which will reduce cost pressures on some households. On the other hand, unless there is a change of policy, the school lunches programme and the transport support package (which cuts 25 cents per litre off the petrol excise duty and half-prices public transport fares) end. The Treasury laconically remarks ‘extending these initiatives would require additional funding’.

July 14: It is now three months before the election and the beginning of ‘caretaker’ conventions, which limit the government’s discretion over policy initiatives and appointments.

July 19: SNZ: Consumer Price Index for June 2023 quarter. The Treasury expects consumer prices to have risen about 6.2% in June year 2023 compared to 6.8% in the March year. (They peaked at 7.3% in the year to June 2022.) It thinks consumer prices will come down further to an annual rate of 3.0% in September 2024.

July 28: SNZ: Employment Indicators June quarter 2023. The unemployment rate was 3.5% in March quarter 2023 and is expected to rise to 3.7% in June 2023 and to continue to rise to 5.3% at the end of 2024.

August 16: Reserve Bank Monetary Policy Statement. The Treasury forecast is consistent with the RBNZ view that the monetary tightening is coming to an end. It thinks the 90-day rate will remain at the June level of 5.3% p.a. through to December 2023 and then slowly fall to 3.0% p.a. by June 2027.

September 21: SNZ: Gross Domestic Product for June quarter 2023. As reported above (June 15 release) the Treasury expects the level to be a fraction higher (0.3%) than the previous quarter.

September 29 or October 5? The Treasury releases its Election Economic and Fiscal Update 2023.

October 14: Election Day!

(The Consumer Price Index for the September quarter is not released until 17 October, although two components – the food price index and the rental price indexes – are released two days before the election.)

The economic messages over the next few months do not look very cheerful. That should be no surprise. Minister of Finance Grant Robertson’s recent messages on the economy have been sober. ‘The backdrop to Budget 2023 is challenging. It is hard to remember a time in New Zealand’s history where there have been so many challenges to our economic, environmental and social systems in such a short period of time.’

Comparing the Treasury forecasts for September 2023 with the estimates for September 2020, when New Zealand last went to the polls gives a slightly better picture.

VOLUMES (adjusted for inflation)

Real GDP is expected to be 6.0 percent higher.

Real Household Consumption is expected to be 6.4 percent higher.

Real Government Consumption is expected to be 9.8 percent higher.

(The above figures should have about 2.7 points deducted to convert to per capita terms.)


Consumer Prices are expected to be 18.5 percent higher,

(Annual Consumer Inflation has risen from 1.4% in Sep 2020 to 5.4% in Sep 2023.)

Real Average Hourly Earnings (before tax) are expected to be 0.7 percent lower.

House Prices are expected to be 17.7 percent higher. (They peaked in December 2021 at over 20 percent above current levels.)


The 90-day Interest Rate was 0.3% p.a. in Sept 2020 and is expected to be 5.3% p.a. in Sep 2023.

The Unemployment Rate was 5.3 percent in Sep 2020 and is expected to be 4.0 percent next September.

I will not give my two pennyworth of political prognostication, but observe that the current account deficit – a measure of our overseas borrowing – was 1.2 percent of GDP in the year to Sep 2020 and is expected to be 7.6 percent in the year to Sep 2023. (It has been falling from the Dec 2022 peak of 8.6 percent.)

Brian Easton is an economist and historian from New Zealand. He was the economics columnist for the New Zealand Listener magazine for 37 years. This article was first published HERE

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