Kelly Eckhold: Westpac Chief Economist on what the latest GDP drop means for the economy

The GDP drop has sparked concern among experts, and it's prompted many to update their economic outlook.

GDP's fallen 0.9 percent in the June quarter - much further than the Reserve Bank and all economists had been expecting.

Westpac Chief Economist Kelly Eckhold says Q3 indicators are already looking better, but the bank's upgraded their October OCR call.

"We upgraded our October call from a 25 point cut to a 50 point cut...the GDP number was quite a bit weaker than everybody's predictions."

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Episode Transcript

Speaker 1 (00:00):
Now there are strong calls for the Reserve Bank here
in New Zealand to cut the ocr by half a
percent double cut when it meets on October eight. The
economy contracted much more than predicted, with a zero point
nine percent fall and GDP in the second quarter of
the year. Calia cold is the chief economist at Westpac. Hey, Kelly, Hi,
so what are you calling for fifty basis points next month?
Twenty five in November?

Speaker 2 (00:21):
That's right, we upgraded our October call from a twenty
five point cut to a fifty point cup.

Speaker 1 (00:28):
Why.

Speaker 2 (00:30):
Well, the GDP number was quite a bit weaker than
everybody's predictions, certainly the Reserve banks projections, which in this
game are the only ones that really matter. Last week,
the governor had indicated that after data suggested they needed
to go faster, they would, So we're taking them at
his word there.

Speaker 1 (00:47):
Okay, but isn't it historic, Cali. I mean, it's happened
in Q two. Q three is already better. Therefore, you know,
are we doing doesn't actually necessitate the to fifty basis points?

Speaker 2 (00:59):
Well, I think it's going to take them more quickly
to the same point. I mean, I think it is
right that the Q three indicators look better than Q two,
but we didn't when we looked at the data have
a reason to think that it was all going to
totally unwind immediately. So hence, you know, it does make
sense that if the Reserve Bank thought they had a

(01:19):
lot of too much excess capacity in the economy back
in August, they're only going to think there's more now.

Speaker 1 (01:25):
Yeah, do you think that, I mean, are you at
all worried about the impact this is going to have
on consumer confidence? Well?

Speaker 2 (01:34):
I think in that sense, it's already old data, and
we did release our own long running consumer confidence survey
earlier this week, which showed that consumers we're not feeling
particularly chirpy compared to the last time that we did
the did the survey three months ago. So I think
people already know that. I think what they perhaps may

(01:55):
be heartened by is that lower interest rates come in
a bit sooner.

Speaker 1 (02:00):
Yeah, Well, this is the thing, isn't It's I feel
like what's going on right now in this country is
that everybody is so nervy and so scared about what's
going to happen and whether we're actually through the worst
of it, that any bit of bad news just kind
of sets that off again. And so is the case
that if you cut the OCR by fifty basis points,
you just boost the confidence a little bit more.

Speaker 2 (02:19):
That was the Reserve Bank's argument back in August that
they needed to move more aggressively to put in those
guard rails to try to break through that caution that
businesses and households were feeling, particularly I think in the
major urban areas where they just haven't been the beneficiary
so far of the big gaining term to trade there
with head Kelly, can.

Speaker 1 (02:40):
We explain how the Reserve Bank got the so monumentally wrong.

Speaker 2 (02:45):
In terms of the GDP forecast. I think they got
it the same way wrong as we all did, where
it's just really difficult in the last couple of years
to forecast call the GENP numbers. You were a call
in the middle of last year, for example, you all
got blown out of the water in terms of what
happened in Q two or Q three. You know, I

(03:05):
think that you would have expected with two hundred and
fifty points of easing in the TIN that the economy
would be more resilient to some of the shocks that
have been going on out there. At the moment, and
hence they thought reasonably I thought at the time that
they should be slowing down and seeing the effect of
what they've done. I appreciate that in hindsight it probably

(03:28):
looks like they could have gone a bit faster and
a bit sooner. But you know, the measure of these
situations is that when you recognize that you've made a mistake,
that you'd take quick corrective action. And I think that
fifty point cut in October will certainly fit that bill.

Speaker 1 (03:42):
Now, I mean, look, the thing about it is, though Kelly,
I understand that this is a difficult thing to get right. However,
all of the data or heaps of the data through
Q two was showing us that there was problem a problem.
We've had such bad manufacturing numbers, we've had such bad
consumer confidence numbers. And then they held in July. Is
that can we explain that away? When this is the

(04:04):
lot who are supposed to be you have their finger
on the pulse of what's going on here.

Speaker 2 (04:09):
Yeah, well, I mean they have an outcasting framework for
working out where they think the economy is in time,
and at that stage, it wasn't telling them that two
two was going to be a minus zero point nine.
It was probably telling them that we might have had
a minus point one or something like that, so they
embodied that into their forecast at the time. But you know,

(04:30):
it's just to end up being worse than that, So
you know, it's one of those kind of Harry Hyde
sight things, isn't it.

Speaker 1 (04:37):
Perhaps so, Kelly Listen, thanks very much, appreciate it. Kelly
are called chief economist at Westpac. For more from Heather
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