NZIER has released its quarterly survey of Business Opinion and it’s bad, bad news. The survey is a very accurate forward indicator of GDP growth. For the September quarter, it shows growth of -0.2% (vs +0.2% predicted by NZIER just a month ago). That doesn’t include the impact of the Christchurch earthquake – that’s predicted to knock 0.5% off December quarter growth, which NZIER was already forecasting to be -0.2%.
Economists BERL are warning of a double-dip recession. I would say it’s past the point of warning. the ship has hit the iceberg, we’re just waiting for the damage assessment teams to come back and tell us exactly how bad it is.
It’s interesting to note the confusion in economic circles over just why the recovery here and abroad has been so weak, and why another recession is already looming. Usually, after recessions the bounce-back is nearly as fast as the fall. Not this time. Why not?
I just keep looking at the oil price. Over $80 a barrel again. Doubled in two years. Near the crucial $100 a barrel mark that causes recessions. That’s the stuff the world economy runs on, yet the effect of its price is virtually ignored by mainstream economists. No wonder they can’t work out what the problem is when their economic ideology ignores the importance of energy and assumes that there will always be plenty of resources or substitutes to fuel growth.
For the Government, this should be the final clue that you can’t just govern by smiling and waving. The economy needs leadership. We need a government focused on building a green economy now.
While we’re at it, let’s look at how Treasury has done with its GDP forecasts. Remember, the Budget came out in late May, most of the way through the second quarter of the year.
|Treasury prediction||Actual result/new forecast|
|Q4||-0.10%||-0.2% (NZIER, not counting quake impact)|
Considering how wildly over-optimistic Treasury’s forecasts have been so far this year and that they predicted negative growth in the December quarter, I wouldn’t be surprised if we’re actually attacked by hyper-intelligent shark people.
Already, the economy is 0.9% smaller than they were predicting just four months ago and it’s likely to end the year as much as 3.1% smaller than they thought it would be. This has serious implications. Treasury’s growth predictions underpin their fiscal projections. The economy’s going to be a hell of a lot smaller than they thought and companies are going to be less profitable – that means lower tax revenue and higher benefit costs, which equals higher debt.
Once again, you’ve got to ask yourself if borrowing a billion dollars to fund tax cuts for the rich was really the smartest decision the Key government could have made.
PS. I wonder if John Key, economic wizz-kid, still believes that we’re “coming out of the recession strongly”?