New Zealand's economic stagnation has become a pressing concern, with Treasury forecasts indicating that GDP per capita won't recover to its 2022/23 peak until the 2027/28 financial year. This prolonged downturn, described as a 'long stagnation,' has led to a substantial reduction in economic output, imagine if everyone had 7% higher incomes and the government had 7% more to spend.
The current economic struggles cannot be attributed to external shocks, as exports and export prices have remained strong. Instead, the issue may lie in economic management. The article compares the current situation to the stagnation during the Rogernomics-Ruthanasia era (1986 to 1995), which was also driven by domestic factors rather than external impacts.
International lenders are particularly concerned about how New Zealand borrows. The government's borrowing for consumption, nearly $100 billion over nine years from 2018/19, has raised eyebrows. Lenders prefer borrowing for investment in tangible assets like housing, waterworks, and roading, as these projects can generate revenue to service the debt. The current approach, which blurs the line between consumption and investment, has led to a paradox where austerity measures further contract the economy.
The article argues that New Zealand must distinguish between consumption and investment to avoid this downward spiral. By focusing on productive investments, the government can boost confidence and economic capacity, potentially avoiding the prolonged stagnation currently forecasted.