Nicola Willis: Finance Minister voices surprise with latest GDP numbers

Nicola Willis says uncertainty over Donald Trump's tariffs drove down GDP in the June quarter.

But the Finance Minister admits has admitted she was surprised to see the economy's contracted 0.9 percent.

She says there was consensus that GDP would drop, but most forecasts had it at 0.3 percent.

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Episode Transcript

Speaker 1 (00:00):
Afternoon. The GDP number out today has come as something
of a shock. It was far worse than expected for
Q two, down zero point nine percent. That is three
times as bad as predicted by the Reserve Bank just
last month. Now, Nikola Willis is the Finance Minister to
High Nicholer, Hi, is this worse than you thought it
would be?

Speaker 2 (00:17):
Yes, the consensus forecast was that we did have a
negative quarter, but the view was that it was more
like zero point three percent. So this is bigger than forecast.

Speaker 1 (00:26):
Okay, Now you're putting this down to the tariffs, right,
and I think to some extent you are right, but
it is bigger than that as well. There is domestic
stuff going on here.

Speaker 2 (00:34):
Well, what we know is in the first three months
of the year we grew at zero point nine percent positive,
which was far faster than anyone had been forecasting, three
times the rate Australia was growing at that time. And
we know that the Trump tariff announcement really knocked the
stuffing out of people's confidence. And we'd felt in the
economy that drawback on an investment in hiring intentions. And

(00:56):
I think this data reflects.

Speaker 1 (00:57):
That there is also the manufacturing collapse, which feels like
it's related to the energy prices. Yeah.

Speaker 2 (01:03):
Well, the manufacturing is also about the timing of when
farmers send stock to be processed. It's also about how
much inventory firms are stocking up for export. So I
think there are range of factors at play in that
manufacturing data. What we know now is that this is
a time to really be kicking off construction and activity.
So I'm pleased that today we've announced the first fast

(01:26):
track housing project that will see more than two thy
seven hundred jobs created in Nelson with hundreds of homes,
an uplift to GDP of three hundred and forty million.
We want to get more of those fast track projects underway,
more government construction underway. All of those will be tailwinds
for growth.

Speaker 1 (01:45):
Are you worried that this is going to knock people's
confidence all over again?

Speaker 2 (01:49):
Well, I don't think people should overread the data for
the second quarter. They need to remember that data and
forecasts do bounce around. In the first three months of
the year, as I said, we grew a lot faster
that anyone had predicted. We also know that we're now
in a different phase where growth by consensus is faster
than it was a few months ago. We've got those

(02:10):
bigger intrast rate reductions coming through, and I'm sure that
the Reserve Bank will look at this data and see
that that underestimated how slow the economy had been, and
they'll have to reflect on that as they make future
interest rate decisions.

Speaker 1 (02:23):
What I think the problem is is that it's going
to knock people's confidence in the institutions. Don't you think
it is going to knock confidence in the Reserve Bank's
ability to see what is actually going on and do
the right thing with the ocr It is going to
knock people's confidence even in the government because you guys
have been saying for the longest time there are green shoots,
it's fine, we're on track, and then get this massive contraction,

(02:43):
maybe even in bank economists who haven't seen it. And
there's the problem, isn't it is that if you don't
know who to trust, you just keep your money in
your wallet.

Speaker 2 (02:50):
Well, it's always the case that forecasts are crystal balls
and no one can ever be completely definitive. I think
you have seen the Reserve Bank pivot in August. They
really focused at that point on the downside risks to
growth and did price in that additional interest rate reduction.
For our part as a government, this reinforces why it

(03:11):
is not the time to be increasing taxes, Why we
should be doing the investment boost, tax deduction for businesses
making investments. Why we must fast track projects despite the
cries from environmentalists and others. We need to see that
activity happening. Why we must say yes to more overseas
investment and trade. We must get those spades in the
ground on the government's and own infrastructure projects. All of

(03:33):
the activity that we're doing is more needed than ever
and an alternative course of just simply borrowing more and
spending more would not have done anything to fix the
second quarter result.

Speaker 1 (03:43):
It looks to me like we're going to get it.
I mean, it must at least be a serious possibility
that we get a fifty basis point cut next month.

Speaker 2 (03:49):
Yeah, well, I've seen bank economists are predicting that others
are more cautious in their outloock. Ultimately will be for
the Reserve Bank to decide.

Speaker 1 (03:57):
Nicholas, thank you for your time, Nichola Willa's Finance Minister.

Speaker 2 (04:01):
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