Is excessive gloom making the recession worse? All the hot Budget 2024 takes
#OPINION
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Are we too gloomy? Are we talking ourselves down? Are we making the recession worse?
I hear these sorts of questions a lot these days. Some blame the news headlines, some blame the Reserve Bank (RBNZ) and some blame a Government intent on ensuring the blame sits surely with their predecessors.
It’s not like things aren’t tough. We’ve been in recession, we’re still waiting for inflation to fall and paying high interest rates until it does.
And those are just the cyclical economic problems. There are plenty of structural worries as well, from big current account deficits and Crown debt to things like infrastructure, power supply and even the disrupting effect of AI.
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But for all that, there remains a serious risk we are overdoing the negativity. New Zealanders are resilient and have been through plenty of economic ups and downs throughout their history. There’s no reason to think we can’t manage this time.
Confidence is crucial to an economy and it seems to be a missing ingredient, not just here but around the world, as a pandemic-battered public struggles to cope with the last part of the great rebalancing act.
American blues
Nearly three in five Americans wrongly believe the US is in an economic recession and the majority blame the Biden administration, according to a Harris poll conducted for the Guardian newspaper recently.
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For the record, the US is not in recession. Its economy has outperformed expectations and it grew by 2.5 per cent in 2023. It slowed to 1.6 per cent (annualised) in the first quarter as higher interest rates started to bite.
The poll found that 49 per cent believed the S&P 500 stock market index is down for the year, even though the index went up about 24 per cent in 2023 and is up more than 12 per cent this year.
That is a startling disconnect. The US stock market is booming and if there’s one bright spot for Kiwis this year, it is that their KiwiSaver accounts are rising on the back of Wall Street (it is certainly not down to our own lacklustre NZX50).
The poll found that 49 per cent believed that unemployment was at a 50-year high, though the unemployment rate was under 4 per cent, a near 50-year low.
Chart of the week: Record debt... not quite
There’s no question that Crown debt soared through the pandemic years with questions now being asked about where all the borrowed billions went and what we have to show for them. Finance Minister Nicola Willis has a long road ahead to bring the balance back. But if it’s any comfort New Zealand has done it before. Net core crown debt as a percentage of GDP hit a record in 1992. It’s one that hopefully we won’t beat.
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