Economist question IMF's growth prediction

Wednesday, 16 October 2019

The International Monetary Fund expects New Zealand's economic growth to power ahead of other countries' over the coming year – but local economists are not so sure.

The fund (IMF) has released its latest World Economic Outlook, which shows a reduced global growth forecast for the next two years, hampered issues such as the US-China trade war and Brexit.

Growth among advanced economies is expected to be 1.7 per cent in 2019 and 2020.

But New Zealand's growth is forecast to run at 2.5 per cent this year, rising to 2.7 per cent next year.

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That's compared to the United Kingdom, at 1.2 per cent and 1.5 per cent, Australia at 1.7 per cent and 2.3 per cent, and the United States at 2.4 per cent and 2.1 per cent.

Finance Minister Grant Robertson said that showed the economy was in good shape.

'Our economic plan has led to record infrastructure investment to boost the economy. This includes rebuilding hospitals like Middlemore, building new classrooms, and transport investment in areas neglected for too long, like regional roads and rail.'

The IMF forecasts global growth of 3 per cent this year and 3.4 per cent for next year. Those predictions have been reduced slightly from April.

The global rate is boosted by countries with young populations, such as China, India, Vietnam and parts of Africa.

Economist Shamubeel Eaqub was sceptical about the New Zealand forecast.

He pointed to the latest NZIER Quarterly Survey of Business Opinion (QSBO), which showed the lowest level of confidence since 2009.

He said a reduction in global growth would have an effect on New Zealand.

The tourism sector would be directly affected by any downturn in global sentiment.

Commodity exports would be vulnerable in terms of prices if not volumes, he said.

China has committed to purchase more from the United States in future.

Eaqub said New Zealand had benefited from it buying elsewhere as a result of its trade war with the US.

'If it's going to purchase more from the US, that's got to come from somewhere.'

Economist Cameron Bagrie, of Bagrie Economics, said he thought these numbers were dated.

'I wouldn't call the New Zealand economy strong. To get the economy at 2.5 per cent growth for 2019, the second half of 2019 needs to be strong and show a clear lift. The likes of QSBO, which asks questions on business activity and anecdotes on the ground do not point that way. Annual growth is at 2.1 per cent and I don't see many signs of a pick-up.

'We are clearly underperforming. A glass half full interpretation is that we are in a stage of deferred achievement. The global scene hasn't really impacted us yet. That's a 2020 story.

'We're getting growth that's better than peers so we'll take it. But New Zealand's outperformance largely comes down to more bums on seats (migration) as opposed to the sort of growth that puts more money in our pockets. New Zealand's population is simply growing faster than the countries listed and that comes with a sting in the tail in the form of intensifying pressure on infrastructure.'