NZIER on economic growth

May 30th, 2012 at 1:00 pm by David Farrar

Brian Fallow at NZ Herald reports:

The economic recovery will pick up speed only slowly, the New Zealand Institute of Economic Research says, as households shed debt and the Government withdraws stimulus amid anaemic world growth.

“The economy is stagnant,” says principal economist Shamubeel Eaqub, in the institute’s Quarterly Predictions, released today.

Historically low interest rates are not encouraging new borrowing and investing, as households and businesses focus instead on paying down debt.

Eaqub said periods of deleveraging typically lasted seven years, which would imply we still had the second half of the adjustment to go.

It is a good thing we are paying off debt, and saving more. But it does mean will remain fairly low for some time – in my opinion. No more debt fuelled growth followed by a crash hopefully.

The economy eked out growth of 1.1 per cent last year and is forecasting 1.5 per cent this year before it picks up to 2.5 per cent next year.

NZIER is among the more bearish forecasters. The consensus is 2.2 per cent growth this year and 3 per cent next year.

“We are less optimistic than most on the timing of the [Canterbury] rebuild, as we think persistent aftershocks, tougher building codes and insurance issues will slow Canterbury’s recovery,” Eaqub said.

I’m down in Christchurch on Friday, so will be interesting to see how the rebuild is going. I think the really big issues are the cost of the new building code, and the private insurers.

8 Responses to “NZIER on economic growth”

  1. Paulus (3,588 comments) says:

    But a Labour Greenpeace coalition could reverse all the good currently going on very quickly – process its called by them.

    Blow the consequences – Power is all that matters – not the cost.

    They will want to spend, spend, spend like all Socialists, as Obama and Hollande, and not like Merkel and Cameron.

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  2. Portia (204 comments) says:

    How many earthquake-affected residents will have already left Chch and taken their insurance payouts with them? And how much reinvestment-that-will-never-happen been factored into growth projections?

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  3. mikenmild (24,102 comments) says:

    I’d be interested Paulus, in how Obama is a ‘socialist’ but Cameron is not.

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  4. Luc Hansen (4,573 comments) says:

    The latest Crosstalk show on RT had as a guest the lovely, but rather strange Rachel Marsden ( doing her usual extreme right wing rant against nearly everything, and after one such spiel the host, Peter Lavelle, said, rather too kindly in my opinion, “Rachel, out of all the guests I have on this show, you are the only one who talks about socialism.” Bulls eye!

    In other words, Paulus and others, you need to get about and about more – you are still fighting yesterday’s wars.

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  5. Luc Hansen (4,573 comments) says:

    Now then, given the low growth scenario painted above, the question is, and perhaps DPF can give us the inside word on this, is Bill English sticking to his forecast of 6.26% growth in total Crown tax revenue from 2011 to 2012? Even given that as at Dec 31 he was already 3.8% short of the forecast for December?

    And if he is not, what is he going to sell next year? All schools land and buildings?

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  6. MT_Tinman (4,436 comments) says:

    When in Christchurch the intelligent and beautiful people use BST cab 276.

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  7. krazykiwi (8,245 comments) says:

    No more debt fuelled growth …

    … until a new generation of earners, eager to ‘get ahead’ and having been to young to be skinned the last time around throw caution to the wind and the cycle begins afresh.

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  8. Joseph Carpenter (215 comments) says:

    Readers might be interested in this regarding economic growth and the Christchurch earthquake economic effects generally. I was speaking to someone very high up the insurance food chain just two weeks ago and he made two main points as follows:

    1) Regarding business insurance (commercial property & business disruption) over 80%+ of all claims have ALREADY been paid or settled, the old 80:20 rule applies with the 20% remaining tail taking years to be resolved. The speed of payout is due to EQC not being involved and ironically CERA being very draconian over decision making with respect to commercial property. The point being this arguably the most stimulatory/productive part of the earthquake spending – and it’s ALREADY been spent or invested – business owners don’t just stuff the payout’s under their mattresses for years to suddenly whip it out in 2014/15 and chuck about truckloads of cash, whatever effect it will have has already mostly arrived.

    2) Reinsurance: the amount of reinsurance cash coming in is much lower than people think. The point here being that the spending must be externally sourced (reinsurance from overseas) or else it’s just the “broken windows” fallacy (hopefully Treasury have not made this basic error). Effectively Government and Local Government were self insured – there is no insurance or reinsurance. EQC had $6 billion of reinsurance of which $4 billion+ has already been paid. Private insurers had approx. $6 billion reinsurance cover in total – which isn’t nearly enough – they have been paying out of reserves/cashflow/pull-in’s from the multinational group/liquidating assets, etc. In fact the most exposed – AMI – couldn’t handle it and the Government has had to backstop their claims, the rest are elated the Government has decided to pay out the home-owners/domestic claims immediately and settle with the Insurance Co’s later – which gives them priceless breathing space (in fact I believe the Government knows how bad the situation is which why they made the offer). The overall point being there simply won’t be a huge tsunami of reinsurance cash coming in to be spent – maybe $12 billion tops and probably 75% has already arrived – so the growth stimulus will be a lot less than expected – all the other spending ($25 billion+) is straight replacement/lost opportunity “broken windows” repair. And even for the reinsurance paid out you can bet your arse we will be paying back every cent over the next couple of decades via premiums/interest.

    I think Treasury and others are starting to realise this and steadily backpedaling their projections over the effect on GDP growth of Christchurch.

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