Over the last month the four major forecasting agencies have released their quarterly economic forecasts. The forecasts are split into two camps- one forecasting insignificant growth over the next 18 months and the other expecting growth of over 2% pa.
Visions of Vitality
The Reserve Bankland NZIER have produced forecasts of economic growth that suggest NZ is on the road to sustainable recovery. But there is a large difference in the sources of growth: The NZIER sees a domestic-led economic expansion this year, reinforced by an export surge over 1991/92; the RB expects a contraction in the domestic economy this year but outweighed by a strong export recovery. Wider differences in the source of the economic recovery would be difficult to find.
Outlooks of Lethargy
The more morose economic outlooks are supplied by Infometrics and Berl. Again though, the reasons for the despondency are converse; Berl is sad because they foresee imports permanently displacing NZ oducers out of their home market and the RB’s monetary policy crunching exp rts through maintenance of a high exchange rate. Infometrics forecasts a decli ing domestic economy but growth in the export sector, although that growth not expected to be sufficient to provide significant overall growth for the economy.
Out of the morass of differences there are some common themes.
- (a) The RB, Berl and Infometrics are all despondent (although to varying degrees) about the prospects for growth in the domestic economy, at least over the next year. Only the NZIER is able to come up with a forecast of a domestic- led recovery. Perhaps this has a little to do with the fact that only the NZIER has been able to come up with an estimate that the economy has been in a boom over 1989/90, growing apparently by some 3%!
- (b) Both the RB and Infometrics have a fairly jolly outlook for export volumes, but Infometrics’ picture on the domestic economy is so woeful as to prevent the growth in export volumes generating an overall growth picture for the whole economy.
Summing up, the RB is sticking loyally to the supply side vision of export growth that will end the economic slowdown; Ben’s consistent disagreement with the thrust of economic policy to lower protection and fight inflation leads them to continue to condemn the policies and provide forecasts of gloom; Infometnics runs a line that given the general thrust of economic policy, the growth results will be slow in coming unless further deregulatory policies are invoked; and the NZLER appears to be talking about a different economy than the other 3 groups on this occasion. What has been interesting over the last year is that both Ben and Infometnics have toned back the tenor of their forecasts, from a big boom scenario to gloom, in the case of Berl; from a nonchalant scene of emerging sustainable growth, to one of prolonged stagnation- in Infometrics’s case. The RB has yet to accept their despondency.