Andrew Dickens: My take on GDP

While I was away tramping all over the top of the Coromandel Peninsula, we had some good and bad news.  GDP came out better than we expected with a rise of 0.7% in the fourth quarter, which should signal the start of green shoots and recovery and confidence.   But at the same time, the consumer confidence figure came out and it was the worst we’ve seen since the 90s.   And then Paul Bloxham, the Australian economist who invented the rock star economy name, came out and said our recession has been the worst in the OECD.   So why aren’t we confident? And why was our recession so hard? Here’s my take: the Reserve Bank and the Government need to start working together.   During the pandemic the bank slashed interest rates while the Government turbo charged spending, leading to a hangover that needed medicine.   The previous Government was rightly blamed for the mess it was responsible for but we had been double hit by the bank and the Government. All levers pulled.   The new Government came in and promptly slashed spending to reduce borrowing and reduced revenue through tax cuts, but the Reserve Bank had already started attacking inflation a year before hand with interest rates.   So once again we were doubly hit. And the tax cuts, which Fran O’Sullivan six weeks ago described as badly timed, meant we weren’t paying back debt. We’re struggling to pay interest.  So as Paul Bloxham has now described, we had an excessive pandemic reaction followed by an excessive inflation reaction.   Now all the stuff we’ve done is technically correct, and this is easy to criticise with 20/20 hindsight.   But it’s been as if the left hand and the right hand doesn’t know what each other are doing, which means our recovery will be slow.  All parties claim they are the prudent fiscal managers and all Reserve Bank Governors claim the same. But on the evidence of the past five years, that’s not true.  We need to learn from this unless we want to keep reeling from boom the bust over and over again. See omnystudio.com/listener for privacy information.