CTU media release
24 March 2011

What matters is the effect on people

“The very slow growth in GDP of 0.2 percent in the three months to December following a fall in September should be seen as a leading indicator of continuing high unemployment unless government action is taken”, says CTU economist, Bill Rosenberg. He noted that GDP per person in New Zealand has now been falling continually since March 2010 and is 5.0 percent lower than it was three years ago.

“Whether the December figure was a small contraction or a small increase in GDP is not really the point”, Rosenberg says. “The economy continues to stagnate, and the September Christchurch earthquake was only a part of the picture affecting the December quarter. Two thirds of Treasury’s lowered expected output from the economy for the next four years is due to the recessionary conditions.”

“What matters is the effect on people, their jobs and their standard of living. Continuing stagnation shows the government still has an important part to play in stimulating the economy and providing support for people out of work, as well as generous assistance to the people of Christchurch. It is not the time to cut expenditure,” Rosenberg said.

“While the government says the stagnation is due to people paying off debt, almost three-quarters of the mortgage debt in New Zealand is held by the 40 percent of households with the highest incomes. The lowest 40 percent hold only 7 percent of the debt [1]. Any repaying is most likely being done by high income households – using tax cuts which have increased the government’s debt. Low income households are just finding life very hard,” says Rosenberg

“The continued poor performance of the economy despite record high commodity export prices suggests that the government stimulus measures, mainly through tax cuts, were not well directed”, says Rosenberg. “Australia continues to outperform us, with 0.7 percent growth in its December 2010 quarter and 2.7 percent for the year compared to 1.5 percent in New Zealand.”

“There is some good news in the results. Manufacturing appears to have broken out of its recession after two quarters of contraction, probably assisted by an improving exchange rate – though this must be seen as an interim result because of data losses Statistics New Zealand experienced as a result of the earthquake. However Agriculture remains in recession. Business investment has shown a significant improvement which is a healthy sign for the future, but we have yet to see it translated into jobs,” he concludes.

[1] Data from the International Monetary Fund, which refers to 2007 data. More recent data is not available but it is unlikely to have changed significantly in the intervening period.

ENDS

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