Grant Robertson says he still has confidence in the New Zealand economy's resilience. Photo: RNZ / Angus Dreaver
Finance Minister Grant Robertson is confident the economy will see growth by the end of the year.
A recession is looking more likely after figures released on Thursday showed the economy contracted by 0.6 percent in the three months ended December - a figure worse than most forecasts.
While Robertson told Morning Report government spending would continue to fall post-Covid, he said that had to be balanced with support in a cost of living crisis.
"What the government can continue to do is to strike a balance in our economic policy making sure that we're careful with our spending ... but we've also got to balance that up with looking after people as we go through these tough times."
He said he understood people and businesses were having a tough time.
High government spending levels during the emergency phase of the Covid-19 pandemic were necessary to protect people, Robertson said.
But a forecast plan showed government consumption continuing to come off those very high levels of spending, he said.
"We move into a phase where we do see government spending overall reduce, but at the same time we're not going to let low and middle income people particularly suffer at the hands of the high inflation we're seeing - so it's tricky, everyone acknowledges that."
Robertson said he still had confidence in the resilience of the New Zealand economy and by the end of the year the economy would be growing, but there was now a difficult period to get through.
Interest rate policies were made independently by the Reserve Bank's Monetary Policy Committee, Robertson said.
"They have a job to bring inflation back down from where it is, but no doubt they will be taking into account all of the data they're seeing including the data from yesterday.
"I note that all the economists who make predictions about these matters have all revised down their predictions about what will happen with interest rates."
The government has been criticised for dropping a number of climate change initiatives during the second round of policy reset earlier this week.
Robertson said the prime minister had been clear the cost of living crisis was the government's focus.
However, Robertson said they were actively looking for ways to help with the crisis while reducing emissions.
"There are many ways that we can use our spending and our investment to make sure that we do two things at once, both reduce emissions and support people with cost of living pressures."
That was a government focus within the Budget and within the climate emergency response fund, he said.
Reserve Bank in a tricky position - economist
ASB economist Nat Keall said the Reserve Bank was in a tricky position in terms of interest rate increases.
"Inflation is still too high, it's still well outside of its target and it hasn't actually peaked yet according to most forecasts including ours."
But the GDP figures meant the Reserve Bank was likely to be more cautious and perhaps hike interest rates in slightly smaller increments, he said.
"We think that they'll probably go for a 0.25 lift at their next meeting rather than a full half a percentage point."
The bank would be unlikely to put too much weight on the GDP figures which were volatile at the best of times, Keall said.
The Reserve Bank may start cutting interest rates at the start or middle of 2024 once it was comfortable inflation was starting to come down, he said.
The New Zealand economy had been very resilient over the last couple of years considering all the shocks it had faced such as Covid and the broader slowdown in global growth in 2020, he said.
There was room for improvement and it would be good to see New Zealand improve its productivity numbers which had been an issue for some time, Keall said.
EMA wants investment in advanced manufacturing
Manufacturing fell the furthest in the latest GDP figures and is down 1.9 percent.
The Employers and Manufacturers Association said investment in advanced manufacturing would drive up New Zealand's productivity and increase wages.
The centrepiece of their plan was a scheme to accelerate depreciation write-offs for equipment.
EMA head of advocacy and strategy Alan McDonald said there has been a steady decline in business confidence in terms of businesses investing in new plants, machinery and people which has negatively affected productivity and GDP.
The lack of confidence had been due factors such as tight margins, supply chain issues and a reduction in demand and forward orders, he said.
Investing in plant and machinery and training people was expensive, McDonald said.
"I think just the overall business environment continues to be one where that confidence isn't in the system."
It was essential to increase productivity and it provided a good return, he said.
"With increased productivity and switch to tech and retraining your people, you're getting higher wages, you're selling more stuff, you're making a profit which can get taxed."
Something like rapid depreciation would allow business investment to be recovered more quickly and would be a positive signal to manufacturers, he said.
The government needed to invest more in research and development for advanced manufacturing to bring New Zealand up to speed with the rest of the world, he said.
