Professor Robert MacCulloch: Why the Nats are sweating bricks about the economy.

The previous Reserve Bank Governor, Graeme Wheeler, was an impressive and thoughtful person. He was also decent - each year coming to visit my classes and tell them his views about the state of the NZ economy. The students greatly appreciated his visits and Graeme Wheeler took it to be part of his public "duties", if you like, in terms of explaining what the Reserve Bank does to aspiring young Kiwi economists.

The current Governor declined the same invitation to talk to the students - and so ended that tradition. What was most insightful of the former Governor was his observation that the NZ economy was being supported during the nine years of National under Sir John Key by 3 factors: construction, tourism and immigration. Wheeler said that the economy would keep growing only to the extent that "construction spending, continued migration and tourist flows" held up. Semi-privately, he argued this was no basis to build a solid foundation for a productive economy. Construction was being artificially inflated by a property bubble, 100 year record high immigration rates would reach saturation point, and who knows what country tourists may next decide is the trendy new destination? He was correct on all three counts.

Our current Finance Minister has the same people advising her as advised Bill English and John Key, yet all three of those drivers of the economy under English and Key have largely disappeared. Property prices are stagnant, and construction is now weak. Immigration has been swinging wildly and is now dropping away after a post-Covid surge. Meanwhile tourism has barely recovered to pre-Covid levels. Maybe tourists don't want to be trapped in this country again like they were during the pandemic. With every one of the Key-era drivers of the economy stripped away, all the PM and his Finance Minister can do is make vague references as to how new infrastructure may improve things - even though there is little money for those investments now - and how cutting red-tape may help - even though barely any has been cut so far. Then there's a vague appeal they're making to how better "back-to-basics" education will crank things up. What's happening behind the scenes is that the Nats are thinking, "Without any of the 3 drivers of the economy under the previous Nat government happening, where are the new drivers going to be coming from?"

Sources:
https://www.bis.org/review/r161212d.htm

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.