I've been hearing a lot of mentions of a certain word recently and I'm starting to get a bit bothered about it.
It is a word that I am steadfastly going to refuse to use in this article, although sharp eyed readers may note that I have used it recently. Sorry. I'll try not to do it again.
The word I am talking about begins with an 'R' and is generally used in connection with an economy that is doing the opposite of growing.
Our economy did take a backward step in the March quarter, with GDP shrinking by 0.2%. But that's actually neither here nor there in the context of an economy that had annual growth at the same time of 5.1%, which for New Zealand is historically right up there.
However, the backward step seems to have set a few people off. You see technically somebody decided that if an economy gets two consecutive quarters where the economy shrinks, it's at that point this 'R' word can be deployed.
And so it is that the mainstream media has seemingly recently got into this kind of 'are we there yet?' pattern where every bit of not great economic news is seen as building us towards this terrible thing.
The first thing I should point out is that all the signs are that the June quarter we've just had will have had a positive outcome, a 'plus sign' in front of the GDP growth figure. But we won't find that out till September.
Because of the reasonably long lag times in release of our GDP figures we won't know the outcome of both the September and December 2022 quarters till March of next year.
So, if things did actually go backwards between now and the end of the year we wouldn't know about that definitively till pretty much the end of the first quarter of next year.
But then so what if it does turn out that we've had two quarters of negative GDP growth by early 2023?
We don't all magically turn to dust. Life goes on. The sun will come up. The cows will keep producing milk.
For the record, the last time we had two consecutive quarters of negative GDP growth was for March and June 2020. That was essentially because we shut the economy down. We did it to ourselves.
The previous occasion in which we experienced a hideous downturn(!) in New Zealand was in the last two quarters of 2010. What a shocker that was, wasn't it?
What, you say you don't remember? No, I don't either. Nobody does. My tongue was firmly in my cheek writing that last paragaph. Quite simply things were not that bad. It actually wasn't until there was some subsequent revision of figures that it became recognised that both the September and December quarters of that year saw (mildly) negative growth. So, only later did we even know that we had technically had one of those things. But it didn't really mean anything.
The economy wasn't flying because we were still recovering from the GFC - yes, THERE was a downturn - but if you look (as one should) at annual growth it was 1.8% for the year to December 2010. Not flash, but actually not terrible by NZ historic standards either.
If we want to talk about historic standards and terrible we should pause on the early 1990s. I've been casting my mind back a bit to that time recently and remembering how awful it was. Unemployment was over 11%. It's currently 3.2%.
It's probably well worth mentioning here that from the start of 1990 to the middle of 1993 we only on one occasion had two consecutive quarters of negative GDP growth (in the first half of 1991) and yet our annual GDP growth didn't get past 2% till the end of the June quarter in 1993.
So, to bring out an 'R' word, living in this country was pretty rubbish at that time. But hey, we got over it.
I do, however, remember how down we were on ourselves at that time. And I'm concerned we are heading the same way.
I've been prompted to opine on this subject because of the very fact that right now, over the next week and a half, we are on the cusp of some further not-great news. This week is seeing us getting the latest (not good) figures from the REINZ, while the Reserve Bank's hiking interest rates again and next week we will likely have annual inflation with a '7' in front of it for the first time in over 30 years.
Consumer confidence surveys are already heading for sub-basement level, this latest news will not help.
We are getting down on ourselves.
I leave myself open to criticism of being overly simplistic, but I think it was foreseeable that the mood of the nation would turn sharply south once house prices did. Our psyche revolves very heavily around the housing market, whether we really consciously acknowledge that or not. It is a weakness for us as a nation because we have such a vested interest in the performance of the housing market.
In the midst of the turmoil of 2020, when at one point things looked bad enough that you could forget about the 'R' word, we were seemingly looking at 'D' for Depression, everybody picked themselves up brilliantly - about the same time as house prices started heading for the sun. Now, goodness me, I wouldn't claim it was all about that - but it sure as hell helped cheer people up.
And now we need cheering up again. It's winter. Okay, it's not cold, but it's a bit wet isn't it? House prices are down. And after we've put up with that darned pandemic for the past two and a half years it's currently more with us than ever. Mortgages are up. Prices are up. Yep, we need cheering up alright.
Our collective mood of course can have a huge impact on the economy in the next year or two.
We did so well, and we've had GDP growth of 5.1% in the year to March 2022, on the basis that Kiwis have kept going out and spending money. That keeps the economy turning.
A key factor has been our near-full employment. And that, for the moment hasn't changed. So, okay things might be costing more. But we are still earning. And there's no doubt that contrary probably to any expectations, the period from 2020 onwards has seen Kiwis able to build up savings. Wallets, within reason, need to be kept open. We spend. It helps.
We really should not then get hung up on the prospect that at some stage next year we may see two quarters in which the economy shrinks. The world will not end.
However, we could, if our attitude is not right, talk ourselves into a longish period of tougher times.
If your economy grows by 0.1% every quarter for say 12 quarters - IE three years - you don't, technically, have one of those 'R' things, do you. But you sure as hell aren't doing very well either.
So, all I'm saying is, we shouldn't be hastily looking to put labels on things at this stage.
We've done very well through this pandemic relative to other parts of the world and can continue to do so. If the mindset is good.
Talking ourselves into something is not what we want to do.
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