Economists hold slightly different views of the Budget's economic forecasts, but feel it reveals NZ to be stronger than was feared

Economists’ initial reactions to the Budget indicate it shows the economy is in a better state than was thought in the recent past.

But they still reveal longer term troubles and the possible persistence of inflation at an uncomfortably high level. 

Council of Trade Unions economist Craig Rennie says the figures produced in the Budget show things in a better light than they were just six months ago.

“But the forecasts are also weaker than they were 12 months ago, in terms of unemployment and GDP growth.

“I think what that reflects is the high level of uncertainty we have now in the forecasts and the huge level of change that we have seen in the past 12 months, both in terms of the cyclone and the global recovery from  Covid-19.”

Rennie says on balance, the forecasts contained in the budget indicate there is some confidence in New Zealand being in a better economic shape now than was evident in December.

These comments follow Treasury forecasts disclosed in budget that New Zealand will avoid the much-predicted recession. 

These forecasts show a lower peak in unemployment, at 4.8%, and a fallback to the Reserve Bank targeted 1% to 3% inflation band by December 2024.

Brad Olsen of Infometrics says all this indicates a soft landing from the challenges that New Zealand has been facing for some time.

“Probably, in my view, the Treasury forecasts are slightly optimistic, but at the same time they show we have had a more resilient economy in recent times. 

“Infometrics’ own view of the first three months of 2023 is that economic activity has been remarkably strong and more upbeat than we had first thought.

Olsen said it was remarkable that with the extra level of Government spending, Treasury’s inflation forecasts haven’t changed at all.  But he had some scepticism, about that.

“In my mind, there is more risk that inflation remains higher and more persistent.”