Nicola Willis: Finance Minister on the GDP dropping 0.9%, a new Reserve Bank Governor

Finance Minister Nicola Willis says a new Reserve Bank Governor will be announced “very shortly” as she comes under growing pressure to tackle New Zealand’s economic woes.

Economists are calling on the Reserve Bank to cut the Official Cash Rate more aggressively after yesterday’s shock GDP result.

New Zealand’s gross domestic product (GDP) fell by 0.9% in the June quarter, a reduction well over market expectations.

Expectations were for a 0.4% decline in GDP, while Reserve Bank forecasts were for a 0.3% drop.

The worse-than-expected outcome could mean the Reserve Bank will cut its Official Cash Rate (OCR) more aggressively than was previously thought, economists said.

In an interview with Newstalk ZB’s Mike Hosking this morning, Willis was asked what she expects from the Reserve Bank to address the situation.

“I will very shortly be announcing a new governor for the Reserve Bank. Obviously, we’ve had a chair change at the Reserve Bank. We are refreshing that institution and I think that is very good indeed,” Willis said.

She would not give a specific date for the announcement, instead describing it as happening “very shortly”.

She confirmed she knew who the new Governor is.

Christian Hawkesby is the current Acting Governor of the Reserve Bank. He was appointed to a six-month term in April following Adrian Orr’s resignation in March.

Willis told Hosking Kiwis shouldn't get down about the latest drop in GDP and we mustn't talk our way into a recession. 

She says we shouldn't overreact to a bad quarter – we've got to keep playing the full game, dig in, and do the things that are needed to grow the economy. 

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Episode Transcript

Speaker 1 (00:00):
Minus zero point nine. When we talk of a Q
three bounce back. This is the problem. Bouncing back from
say zero point three is way easier than it would
be now seemingly. Is it possible that Q three may
in fact not have enough bounce to be back in
the black, and that then leads to a recession. So
what do we make of all of this? Nicola Willison's
of course the finance minister, and is well, this very
good morning to you.

Speaker 2 (00:21):
Good morning mate.

Speaker 1 (00:22):
The reason I asked that particular question is manufacturing, for example,
the other day is still in contraction. Here we are
at the latter part of Q three. Manufacturing, one of
the things that led us down so badly in Q two,
is still in contraction. Could we be heading for a recession?

Speaker 2 (00:38):
Well, there are some very good signs. You've got electronic
card transactions values up, you've got retail spending up. You're
seeing that job adds are up the most significantly in
many years. You've got migration data starting to improve, and
most significantly, Mike, over the next six months, we're looking

(00:58):
at around half of mortgage is going on to lower rates,
and that means that there will be more cash flowing
into the economy, and actually that manufacturing index and that
services index they have recovered a little bit. So the
economists tell me there's every reason to believe that the
third quarter, the one we're in right now, we are growing.
And in fact, Treasury advised me that up to half

(01:20):
of the data for the quarter just being has been
affected by seasonality and measurement issues. And we know in
the first three months of this year we grew at
zero point nine percent, three times as fast as Australia did,
twice as fast as economists were forecasting. So we shouldn't
overreact to a bad quarter. We've got to keep playing

(01:41):
the full game. We've got to dig in. We've got
to do the things that we know and needed for
this economy, and that is what our government is doing. Right.

Speaker 1 (01:49):
I'll let you do that because you're allowed to do it,
because that's your political defense. One of the examples you
just gave was the services sector. Services are still contracting.

Speaker 2 (01:58):
Well. The PSI has show in some improvements from where
it was, and what we are seeing is that actually
in these numbers, the amount of investment going into intangible
as sets, so software and technology and the like, is
actually going up. So there are mixed signs. No one's
saying that we wanted to see negative growth in the
second quarter. The question for the government is what are

(02:19):
the things we should do to ensure that businesses are
confident about investing, about hiring people, about growing. When I
talk to them, they say, get some big fast track
projects out the door. Well, yesterday we had the first
major fast track housing project Indorse that's going to bring
hundreds of millions of dollars and hundreds of jobs into Nelson,
create hundreds of houses happening because of our fast track.

Speaker 1 (02:43):
Nelson's closing down. I don't know if you've seen the
food and proper chips is going and the sawmill's gone,
so they'll need something that none of that's your fault.
I get it. Look, do you worry about the d
industrialization of this country when you're looking at manufacturing. Once
a manufacturer closes, they don't reopen.

Speaker 2 (02:57):
We are very focused on energy policy because it's clear
that countries whose energy becomes less affordable find it difficult
to support manufacturing. And there's no question that the massive
declines and gas have led to higher spiking prices and electricity. Now,
of course that's a legacy left to us by the
last guys. But we're looking at the energy system to

(03:17):
ensure that we're getting the investments and the electricity generation
and future that mean that we will have affordable energy
that is essential to any economy, which is why it
was so reckless to ban the exploration of oil and gas.

Speaker 1 (03:30):
Yeah, I look at that poll this week. The one
that really interested me and you will have seen it,
is the number of people who now blame you. See.
My argument's always been you get your first term, do
whatever you like, and then you go back to the
people and get a crack for a second term. In
history tells us, broadly speaking, that's how it happens. The
number of people who now blame you surprises me, and
that's your political reality. What do you do about it?

Speaker 2 (03:52):
Well, we have just been through three very difficult months,
as the data shows, and I don't blame people who
say I want this economy fixed. That's what we're getting
on and doing. The real question is what is the
prescription that people would prefer. Would they prefer a labor
mardy to party green scenario? Where the answers I've heard
so far is let inflation go higher, spend more borrow more,

(04:16):
tax more, and I don't think that that is a
recipe that New Zealanders will vote for. They're smarter than that.
They tried that last time and it didn't lead to
a good place. It drove our economy into the ditch,
and we're doing the things needed to keep it going.

Speaker 1 (04:31):
Can I suggest to you you, mister trick yesterday or
you lost the room when you were trying to tell
us the number of countries that went backwards. The reality
is the ones we play with, China, the US, Australia, Japan,
the OECD, the EU, Europe, They're all went forward. So
you're but Donald hurt us. They didn't hurt them. So
how came wear the out well? How can wear the
outlier well?

Speaker 2 (04:51):
On that list? Mike, Actually Germany did go backwards in
this life.

Speaker 1 (04:54):
I didn't say Germany, I said the EU and the
euro sector. Canada is your only one that went backwards
a little bit. I mean most trees survived and survived. Okay,
we are an outlier why.

Speaker 2 (05:04):
We were in the second quarter. But equally, as I say,
in the first quarter, we had relatively high levels of
growth compared to many of those countries. And my view
on why the Trump tariff announcement, which remember happened on
the second day of the quarter, that this data relates
to my view is that it really knocked the stuffing
out of confidence. You saw that and all the confidence data.

(05:25):
Business confidence slumped, household confidence slumped, and people basically tucked
up their wallets, put their plans away in a locker.
And we saw that in terms of investment that which
reduced significantly during that period. I think there is no
question that the Trump tariff announcements had an effect on
the sentiment in New Zealand. We now have more certainty

(05:47):
and we have signs that people are feeling more confident
about investing and spending now and into the future.

Speaker 1 (05:53):
I know you're probably not going to answer this the
way it should be answered, but the Reserve Bank, I mean,
at the end of the day, when Luxeon came on
this program and had to crack at them a couple
of weeks ago, everyone got angsty about it. In their independence,
you can't hide from the fact that their level of
incompetence is bordering on being criminal, and you're wearing the
political cost of that, aren't you.

Speaker 2 (06:13):
Well. I'm allowed to state a fact which is that
the Reserve Bank completely underestimated the decline that happened in
the second quarter and that was the point where they
decided to hold rates. I'm also allowed to say that,
thank goodness, they made a pivot in August to focus
on the downside risks to growth and indicated a lower
interest rate track. I'm also allowed to say they have

(06:34):
the next opportunity on the eighth of October, and certainly
the market is pricing in a lower interest rate track.
So it will be up to them to make their
own decisions independently. But I will very shortly be announcing
a new governor for the Reserve Bank. Obviously we've had
a chair change at the Reserve Bank. We are refreshing

(06:55):
that institution and I think that that is very good.

Speaker 1 (06:57):
Indeed, do you know who the new governor is? I do, right,
So when's the announcement coming?

Speaker 2 (07:03):
Very shortly?

Speaker 1 (07:04):
Okay, So my point being this, you don't want to
end up like Trump and just you know, Barrage pale
with endless abuse. But just explain to Megain your view
as finance minister, how is it? And I know economic
genius and I could see it if I can see
what was happening in Q two and they can't. Why
are they employed?

Speaker 2 (07:23):
Well, the Reserve Bank is always balancing their responsibility to
keep inflation within the target band over the medium term,
and they need to have stable economic outpush. How they
weigh that balance even varies around their own table. You've
seen split votes around the Reserve Bank decisions in recent times,
and I think they will all be looking back, reflecting

(07:44):
on their decisions and thinking about how they might check
and adjust for the future.

Speaker 1 (07:48):
Well, it doesn't help us, does it.

Speaker 2 (07:51):
Well, I think it will help us because what we
have seen is that they're now committed to a lower
interest rate track, which is helpful because I think when
you think about your average they're saying, well, actually, I
need to have confidence that I can pay my mortgage,
maybe that I can buy a bigger house in future,
that I can buy a house at all. And the
biggest tailwind for that is lower interest rates. And we

(08:12):
know that they are what has spurred previous recoveries. That's
actually good economics. Our government has done everything we can
to create the space for the Reserve Bank to do this,
and they just have to keep doing that job.

Speaker 1 (08:23):
When Douglas says what he says yesterday, I just do
wonder now whether you guys missed a bit of a
trick what he did to this country. It was short
and it was sharp, and you guys, this time around,
it hasn't been sharp enough, and therefore it hasn't been short.
It's been long and it carries on and that's a problem.

Speaker 2 (08:42):
Well. Views will differ on Roger Douglas. There are many
who would say that he created quite a lot of
chaos in the economy, and of course it was Ruth
Richardson after him that did significant spending reductions. But for
our part, we've chosen a balanced course of consolidating the
books over a few years, which has been endorsed by
international economists, by ratings agencies who say that our fiscal

(09:06):
plan is a good one. We've delivered significant savings while
investing in more infrastructure in health services and education services.
I completely stand by that approach, and Roger Douglas may
want me to slash spending overnight. That would be the
wrong thing to do in terms of the commitment we've
made to voters, but actually it would be the wrong

(09:26):
thing economically, so I won't be taking his advice.

Speaker 1 (09:29):
Appreciate your time and have a good week in Nikola, Willis,
the Finance Minister. For more from the mi Casking Breakfast,
listen live to news talks that'd be from six am weekdays,
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