CTU blasts campaign by 'vested interests', as NZ economic growth surprises

Thursday, 20 September 2018

A bounce back in dairy production helped the economy grow more quickly than expected in the June quarter.

Strong economic growth figures have exposed 'gloom merchants' trying to talk down business confidence, Council of Trade Unions president Richard Wagstaff says.

Figures released on Thursday show the economy bounced back to strong growth in the June quarter, when it expanded by 1 per cent, faster than economists predicted.

Led by dairy production - but with growth broad based across most sectors - it was the fastest quarter of growth in two years, although annual growth rose only marginally.

The figures appear to be in stark contrast to the gloom which has hit New Zealand's business sector, with business confidence at the lowest levels since the economy was last in recession, according to some surveys.

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Council of Trade Unions president Richard Wagstaff said 'vested interests' have attempted to talk down business confidence since the new Government was formed.

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In a statement, Wagstaff claimed business commentators had attempted to darken confidence but were 'out of step with reality'.

Wagstaff said since the formation of the new Government 'there has been a carefully coordinated campaign from vested interests to talk the business community into depression'.

Economists were surprised by the growth in the quarter, not only because of the overall level, but also because the aspects which had been expected to flatter growth had less of an impact than predicted, meaning underlying growth may be stronger than believed.

Reserve Bank governor Adrian Orr has predicted the economy will pick up speed, but indicated that if it does not he is prepared to slash interest rates. Thursday's growth figures were considerably stronger than the Reserve Bank's forecasts, but economists still see a risk of the economy slowing in the second half of the year.

However, there are still expectations that the economy has cooled, with the figures released on Thursday overing a period which ended almost three months ago.

Jane Turner, a senior economist as ASB, described the performance of the economy in the June quarter as 'cracker', but warned the momentum may not continue into the second half of the year.

'Alas, looking ahead, growth may have lost some momentum over [the September quarter],' Turner said.

'Negative business sentiment poses a threat to economic growth sustaining at current rates over the coming year.'

Asked whether his comments would stand if the economy slowed in the coming months, Wagstaff said the talking down of the economy had reached such a level that some people may have been disappointed by the figures.

'I'm not saying that it [economic growth] is not going to fluctuate in the future.'

Growth in the June quarter was twice the pace of an unexpectedly weak first three months of the year, with annual growth increasing to 2.8 per cent.

The New Zealand dollar jumped on the news, as traders took bets that the Reserve Bank was less likely to cut interest rates in the short term than previously thought.

At its last announcement in August, the Reserve Bank predicted the economy would pick up speed in the second half of the year, but laid out a scenario under which if it slowed, it would be prepared to slash the official cash rate.

While an interest rate cut is still seen as a possibility, the odds of a cut in the coming weeks seem more remote.

'Broad-based'

Statistics New Zealand said the growth was broad-based across the economy, with 15 of the 16 categories it bases its calculations on expanding in the quarter.

Agriculture, forestry and fishing led the growth, up 4.1 per cent in the quarter, bouncing back after a slow start to the year. Boosted by strong dairy production, agriculture had its strongest quarter of growth since September 2014.

The mining sector contracted sharply, hit by an unexpected outage at one of New Zealand's major oil fields. As a sector, mining dropped by 20 per cent, the largest quarterly fall in almost 30 years.

Thursday's figures are welcome news for the Government, which is relying on Treasury forecasts for consistent, healthy growth to meet its spending promises while also cutting debt as a share of the economy.

'These are very solid figures for the quarter,' Finance Minister Grant Robertson said.

'The really pleasing thing is it's broad-based growth across most sectors.'

Robertson has described the economy as in 'transition' away from population growth and housing speculation, but maintained there was 'every reason' to be positive.

'There will always be challenges, international factors, access to skilled staff, but I think that if we all take a positive attitude, that will certainly help.'

Economists said the figures cast the economy in a more positive light than expected.

'Not only was the overall result stronger than expected, the details were more encouraging for the economy's growth prospects going forward,' Westpac senior economist Michael Gordon said.

'We expected a solid underlying picture, but with some one-offs that would boost the growth rate in the June quarter. Instead, growth was shared widely across the economy, and the one-offs – in areas such as electricity, transport and government services – weren't as big as we expected, which means there's less risk of an unwind in the next quarter.'

The New Zealand dollar jumped on the news, while products linked to future interest rates strengthened, as the odds of interest rate cuts appeared to fall.

'Today's result doesn't guarantee that the economy is on an accelerating path, but it does argue against the case for [official cash rate] cuts in the near future,' Gordon said.

Economists had predicted at least respectable growth in the June quarter, as one-off factors which caused economic growth to be unexpectedly slow in the first three months of the year, reversed in the following months.

With business confidence at the lowest level in at least six years, and possibly at the lowest level since the global financial crisis, bank economists see risks that the economy will slow in the second half of the year, which may not be completely eased by Thursday's figures.

On a per capita basis - how much growth New Zealand is experiencing adjusted for population growth - the economy grew by 0.7 per cent in the year to June 30.

After climbing to 2.2 per cent in 2015, growth per capita has been falling ever since.

National's finance spokeswoman Amy Adams said the Government's claim that it wasn't relying on population growth to underpin economic growth was a 'fallacy'. Annual growth per capital was 'significantly below' the 1.6 per cent New Zealand had averaged since 2012, Adams said.

'In order to close the after wage gap with Australia - as we had been doing since 2008 - we need to be growing faster on a per person basis. Instead, New Zealand is now falling further behind.

'The Government inherited an economy that was growing strongly. Every one per cent lower growth means fewer opportunities for New Zealanders and around $800 million a year less revenue to pay for public services.'