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Kiwibank economists say monetary policy is proving ineffective without fiscal support and we need 'strong, wise and expansive fiscal policy'

Kiwibank economists say monetary policy is proving ineffective without fiscal support and we need 'strong, wise and expansive fiscal policy'

Kiwibank economists say the country’s flagging GDP growth figures highlight the need for strong fiscal policy from the Government.

Their comments came as Statistics New Zealand released figures for the June quarter showing that GDP rose 0.5% in that quarter, and 2.1% between the June quarter in 2018 and the latest quarter.

The figures were largely in line with market expectations, but the 2.1% annual growth figure is the slowest rate since 2013.

Kiwibank chief economist Jarrod Kerr and senior economist Jeremy Couchman said the 2.1% figure is well below the 2.75% “potential” the economy could be growing at based on things such as population rates, participation rates and productivity.

“The importance of potential is it offers us an estimate of where we should be running. And we should be running faster,” Kerr and Couchman say.

“What’s needed, is a strong fiscal policy. Monetary policy is proving ineffective without fiscal support. The budget is more important than the RBNZ’s MPS.”

The economists say what is needed “to snap us out of limbo”, is strong, wise, and expansive fiscal policy.

'Step up and do their part'

“Central banks around the world, including the RBNZ, are calling for Governments to step up and do their part. Departing [European Central Bank] president Draghi said last week, as he cut rates and restarted QE, that “Now is the time for fiscal policy to take charge”. And in New Zealand, we have no funding excuse.

“Funding is in ample supply, and done dirt cheap (to quote Australia’s hardest export, AC/DC). There’s nearly $17 trillion invested in government bonds with NEGATIVE interest rates.  Those (predominantly foreign) investors would love to see more Kiwi Govies to buy at +1%. And we could issue +30-year bonds for international insurance companies, super funds and locals ACC and NZ Super. It’s not hard.”

Turning to the next Reserve Bank review of the Official Cash Rate next week the Kiwibank economists said they expected no change, but that there would be a cut in November to 0.75%.

“The risk of another move to just 0.5% is rising,” they say.

Dragged down

ANZ economists are already forecasting that the OCR will be dragged down to 0.25% next year.

And ANZ senior economist Miles Workman said after Thursday’s GDP release that data continue to reflect an economy that has continued to slowly lose steam over the first half of 2019.

“And with forward-looking indicators continuing to slip, this process looks set to continue for a while yet,” he said.

“But it’s not just the domestic economy that looks set to disappoint the RBNZ’s August [Monetary Policy Statement] forecasts. Trading partner growth has also been softening – and as a small open economy that’s a growth anchor to be particularly concerned about. 

“While we’re not expecting growth to roll over (our forecasts are for annual growth to bottom out at a little below 2% in Q1 2020), we do think inflation pressures will wane in this environment. We expect the RBNZ will use the tools it has available to lean against that (and keep inflation expectations from deteriorating significantly). We have pencilled in 25bp cuts in for November, February and May, taking the OCR to just 0.25%.”

The GDP detail

In terms of the detail in Stats NZ’s Thursday release, GDP per capita increased 0.2% in the June 2019 quarter, following an increase of 0.1% in the March 2019 quarter.

For the June 2019 year, GDP per capita was up 0.8%.

As expected a bounce back in service sector activity was the biggest contributor to the growth in the latest quarter. The sector makes up about two thirds of New Zealand's economy.

Stats NZ national accounts senior manager Gary Dunnet said activity in service industries rose 0.7% in the June 2019 quarter, following a 0.3% rise in the March 2019 quarter. Growth was widespread, with eight out of the 11 service industries showing growth.

Main drivers

The main drivers of growth in services industries include rental, hiring, and real estate services (up 1.0%); transport, postal, and warehousing services (up 1.8%); arts, recreation, and other services (up 2.8%); and public administration, safety, and defence (up 1.8%).

Goods producing industries fell 0.2% in the June quarter, driven by declines in manufacturing and construction.

“Both of these industries rose in the March 2019 quarter,” Dunnet said.

“This quarter, lower investment in non-residential building and a decline in food, beverage, and tobacco manufacturing led to the falls.”

Construction fell 0.8% this quarter, following two consecutive quarters of strong growth in construction, up 3.4% and 2.2% in the March 2019 and December 2018 quarters, respectively.

Growth in electricity, gas, water, and waste services partially offset these falls in goods-producing industries, rising 3.1% in the June 2019 quarter.

Milestone for the economy

The size of New Zealand’s economy in annual current price terms hit a milestone in the June 2019 quarter, reaching $300 billion for the first time.

“It took about 14 years for the economy to go from $100 billion to $200 billion, and nine years to reach $300 billion,” Dunnet said.

Activity in primary industries grew 0.7% in the June 2019 quarter, recovering from a 0.5% fall in the March 2019 quarter.

Agriculture, forestry, and fishing production rose 1.6% in the June 2019 quarter, off the back of two consecutive falling quarters. Agriculture (up 1.1%), forestry and logging (up 1.9%), and fishing (up 1.2%) all grew this quarter.

Activity in the mining industry decreased in the June 2019 quarter, down 4.4%, after three quarters in a row of growth. The main driver for the fall in mining was a drop in exploration activity.

Household spending

Household spending grew 0.5% in the June 2019 quarter, following a 0.4% rise in the March 2019 quarter. Spending on durable goods increased by 0.8%, while household spending on services rose 0.5%. Spending on non-durable goods remained flat in the quarter.

Investment in fixed assets dropped 1.0% in the June 2019 quarter, following 2.7% growth in the March 2019 quarter. This was largely due to lower investment in non-residential building, which fell 3.7%. The fall was partially offset by a 2.1% increase in investment in plant, machinery, and equipment.

Exports of goods and services fell 1.8% in the June 2019 quarter, following a strong 2.7% growth in the previous quarter. The main drivers of the fall were exports of dairy products and exports of meat products, falling 8.9% and 2.6%, respectively. An increase in exports of coal, crude petroleum and ores, and gases partially countered the fall, rising 20%.

Imports of goods and services fell 0.3%. This is largely due to falls in fuel imports and imports of passenger motor cars.

Economic growth

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Better than many were predicting. Long may it continue.

What this?
"Goods-producing industries fell 0.2% in the June quarter...."
or this?
"GDP per capita increased 0.2% in the June 2019 quarter, following an increase of 0.1% in the March 2019 quarter."

Is this the best we can do given all the 'help' the economies of the World have been given? If so, 'bad' is going to look disastrous when it comes....


GDP per capita increased 0.2% in the June 2019 quarter

According to Stats NZ QES data, total weekly paid hours increased 0.2% in the June 2019 quarter. So productivity growth is 'statistically insignificant' in Q2 of 2019.

It gets better: year to June 2019, total weekly paid hours increased 1.1% against a per capita GDP increase of 0.8%. Working longer for less!

Glad to see we're finally build REAL economies again and not the false one trick pony economy that National created, with its blatant selling out NZ of property and land to foreign buyers. Which massively shoved up the cost of living and damaged our real economies. Well done Labour keep at it, since it's going to take some time to rebuild. :)

Are you on some "commissar mailing list"or is this your own delusion?


Sorry are you from NZ, have you been living under a rock? If you can not work out that relying on property prices for GDP growth as National did for 9 years, is a very bad idea then there's no hope for you.

Maybe in the still of the night, when no one is around, maybe then, and only then, do you allow yourself the space to face the plain fact that Labour isn't doing a good job.

Maybe in the still of the night, when no one is around, maybe then, and only then, do you allow yourself the space to face the plain fact that Labour isn't doing a good job.

So what's the solution? A ruling elite that can ensure that bubble-driven consumer spending will preserve the status quo? I think too many NZers believe that the status quo is infallible.

The main driver of services this quarter was rental hiring and real estate.

The main driver of services this quarter was rental hiring and real estate

Tourism and property. Biggest games in town.

The trend isn't looking good and I note there is nothing about GDP per capita anymore from the finance minister.

It's time for some fiscal stimulus and the only viable option is tax cuts. Start by adjusting the bands which have not adjusted in 10 years.

"For the June 2019 year, GDP per capita was up 0.8%."

Woefully anemic

Not amazing, but at least it's still going up, right?

GGP - yeah at least it is going up.

GDP growth couldn't happen over night (Or even a few years) not with all the damage that National did.

I suspect that with good leadership, clear and stable communication to business and a bit of certainty rather than the constant flip-flopping and out of the blue diktats from Labour business might have been a bit more confident about the future and willing to plan ahead and maybe invest in things/staff.

Sorry, but Labour are not doing a good job of leading. I agree that they have done some good, (eg, foreign buyers ban, ringfencing, 5yr brightline) about the property ponzi, but other than that they are doing a rubbish job.

Are you me?
100% agree.

The number is greater than zero, sure. There have only been three quarters with a lower number in the last 32 quarters though, so pretty anemic.

It's unclear whether this is nominal or real GDP, but the article specifically states real GDP when quoting other figures, so I would assume this is nominal GDP per capita. Which means real GDP per capita growth is negative, so really not going up in any real sense.

I think it's only referring to real GDP all the way through there. David, if you read this, could you clarify?

GDP (headline, per-capita and its sub-components) is always reported by Stats NZ in real terms, that is, after adjusting for GDP price index.

Also, GDP price index is not the same measure as your usual inflation measure, such as CPI. In fact, movement in prices of every GDP component is adjusted for, including export and import prices.

Can I uptick that x 100

Yep, time to adjust the tax bands.
10.5% rate should move from $14k to $20k
17.5% rate should move from $48K to $60k
30% rate should move from $70K to 90K
and 33% rate over $90k (and should be raised to 35% IMO)

I am loving that 4th extra band but I think it should be on over 100k.

Maybe make a tax free band at the bottom. Like first 5k tax free?

I was thinking to myself while out on the water this morning and watching a 25m fishing boat disappear from its overnight anchorage, how stupid our measure of GDP is. A fishing boat hammers the fishery into decline to export most of its catch offshore, and it provides a nice bit of positive economic data. The fisherman down the beach catching his breakfast from the same resource isn't calculated in. You are all living a fraud.

As reported by multiple media sources in 2012, economic activity from the aftermath of the earthquake has assisted our GDP's post-GFC "recovery".

Singularity U reports the fall in road accidents as a result of widespread adoption of autonomous vehicles could knock 3% off global GDP.

Greed, death and destruction is good for GDP!

Like the blue cod boats that travel to the North Island because the Nelson fishery has collapsed

We're a $ 300 Billion economy , guys . . Does that not imply we could easily have afforded the infrastructure projects which this government has cancelled ...

... how much more frustration , how many more crashes and deaths on the Orc Land to Whangarei link before we spend the money and upgrade it to 4 lanes ..

..make it harder to go north, not easier. Then it has some chance of avoiding becoming the congested polluted and overcrowded mess that is aukland. Less roads not more, stay at home and clean up your own back yard before searching for purer pastures to stamp your ugly footprint on.

I reckon, it would be a crying shame to see such a pretty place like the far north turned into a henous urban sprawl

They are currently building the 'holiday highway' as we speak? You can see the construction from Puhoi to north of Warkworth

I believe that is only going ahead because the contract had already been awarded, otherwise that too would have been cancelled.

Gummy we can’t upgrade every road in the country to 4 lanes to avoid crashes. This government is doing much more to save lives by making smaller upgrades to a large amount of the highway network rather than gold plating one road at the expense of the others.

With the RBNZ previously wanting annual GDP growth of 3.2 percent to reach its stated inflation target , will Stats NZ marked downward revision to population growth ( bursting the housing shortage fable ) ,in doing so improving the per capita GDP, strengthen the case for more RBNZ cuts sooner than later given that we cannot reach the needed inflation target with what appears 'better'growth. Or, given the downward revision to the population, will RBNZ models be adjusted to a lower path of required GDP delaying the need for further OCR cuts.

So, taking a wider view and seeing how this stacks up with our largest trading partners for some perspective.

1. AUS - slowest GDP growth in a decade 0.5%
2. CHINA - Q2 GDP Growth Weakest in 27 Years..
3. ENG - UK falls to bottom of G7 growth league in second quarter - British economy contracted by 0.2%
4. USA - Grew at 2%..
5. JAPAN - Japan's quarterly economic growth was revised lower to 0.3 percent ...

Total for the G20 - Growth of real gross domestic product (GDP) in the G20 area slowed to 0.7% in the second quarter of 2019..

GDP contracted in the United Kingdom and Germany (by 0.2% and 0.1%, respectively, in the second quarter, compared with increases of 0.5% and 0.4% in the previous quarter). GDP growth also slowed in Turkey (to 1.2%, from 1.6%), India (to 1.0%, from 1.3%), the United States (to 0.5%, from 0.8%), Japan (to 0.3%, from 0.5%), Italy (to 0.0%, from 0.1%), and the European Union (to 0.2%, from 0.5%).

GDP growth was stable in Australia, France and the Russian Federation (at 0.5%, 0.3% and 0.2%, respectively

Dunno but it looks pretty darn ugly to me everywhere despite endless "stimulus"

Irrespective of your political flavour this is more to do with global issues than just us

Agreed. I do think tho that JA & Co are starting to lose their credibility with the countless policy U turns. This has to be affecting consumer confidence and in turn consumer spending.

I'd be surprised if this decline in growth doesn't continue. Construction and related trades are slowing down across the country now and this will have to have some effect. The only real question is how quickly now we have had these significantly large cuts in fixed rate mortgage rates in the past month.


Was talking to a council planner today and she said the number of resource consent applications for residential developments has dropped markedly in the last 2 months.
That's a leading indicator, so it will probably mean we start to see building consent numbers dropping in the next few months.

House price will shoot up then?

Nope, not in my view.
Lots of new builds coming on line, many of which will struggle to sell. That tsunami of new builds (sorry to anyone offended by metaphors referring to tsunamis) will be one of several factors keeping a lid on prices.
By the time (in 2-3 years) that the current slow down in resource consents could have had an effect in pushing up prices, the market would have crashed.

Not a bad result compare to other countries!
What NZ needs is not one of those Justin Bieber Rock Star economy that only lasted for a year or two. We needs one of those Keith Richards economy, one that just goes on and on for decades

Don't know if I'd view it that favorably compared to other countries. To a certain extent our higher growth is a product of our relatively high levels of population growth.

I thought that a Keith Richards economy would have been one that has to climb out of the coffin every morning....but, of course, looks ain't everyfing....

You do realise our Keef is rumoured to sleep hanging upside down by his claws in a wardrobe and receives daily dialysis treatment to purify his tainted blood?

Bread and circus time.

How much, increase or decrease, on the results of this Saturday's match between All Blacks and Boks?

We already have the circenses bit.....just need the panem....

ABs by less than 10 points this weekend.
But we'll lose to the Boks in the final.

I was more meaning that with the barbarians (the recession not the rugby team) at the gate, a World Cup couldn't come along at a better time (as long as we keep winning) to distract us from the reality of the situation.

And since 'feelings' (well beings) are now more important than facts, I would say that a World Cup win was worth .5 GDP for a quarter year, But starting with a loss to the Bok's this Saturday, a nervous -.2 until the quarters finals at least.

We dont need any serious fiscal intervention until we are in a recession & monetary policy is exhausted.

the OCR is looking pretty exhausted

Nothing wrong with policy U turns. I was watching Imran Kahn cricket legend now President of Pakistan telling a reporter from Al Jezzera why his Government has done so many. He said in a most majestic fashion...that only an idiot steers a straight course when they see rocks ahead. Then he came up with another metaphhor from his cricket days, he didn't need to I was already convinced. I have to say it does take big courage to say you screwed up and try something else, I give big ticks to people like that so the coalition get a few from me. Only problem is what are the rocks they are seeing that led to this immigration un...pause? Is it an admission that the only real way to grow our hopelessly disorganised economy is to backfill it with imported capital and low wage low productivity workers? Thats not much of a society or an economy is it?


How about government increasing all benefits by $100.00pw. That would help the economy and the beneficiaries immensely.

Now that I can guarantee would result in rent rises.

I think....
Now is the time....
For more immigration.