Afternoon, the GDP number for the last quarter of last year is out and it's a little on the
disappointing side. The economy grew at 0.2%, which is the low end of what was expected. The reserve
bank had packed 0.5%. To analyse this, we have former Reserve Bank senior economist Michael
Radale with us. Welcome back, Michael. It's been here, Heather.
Now, it's not great, I suppose, but on the bright side, we finally have some annual growth.
Is that worth considering? Yes or no. I mean, there's
it's better than being a negative number. It's clearly a pretty sluggish recovery or was
after December. The key thing that I remember is some statistical problems,
SNZ have had some problems with their measurement and you get quite big revisions on these numbers.
So I couldn't end up being anything for about plus 0.5 to maybe minus 0.1 when all the dust
settled on the statistical revisions. Yeah, okay, that is a fair point. I mean, because the Q3
number, which was quite good at 1.1, has been revised right back to 0.9. If we've got a problem
with stats here. It does appear so. I mean, Westpac's got an economist who's done some really good
work, sort of trying to unpack it and they do seem to be some sort of issues that may result
from the missing up at the patents of the economy during the COVID period. They're really
technical issues, but they do mean that you have a little bit less confidence in some of what's
going on and what's some of what's getting reported right at the moment. It's water under the
bridge at this point, but it does look like in the second half of last year we had a pretty
new said, but real recovery and that's what you'd expect with interest rates falling,
commodity prices pretty good. Okay, so yes, we have a recovery which is fantastic and we have some
manual growth for the first time in two years, which is fantastic, but this is not a great point
for us to start off at when we have the Iran war, right? So you've got 0.2, then you've got the
Iran war, what should we expect from here on in for the economy? Well, for Q1 hard to tell,
probably something for recently, sort of low, but positive. The real risk is what happens next
quarter as the full effects of high and rising oil prices and perhaps shortages of physical supply
cut in. It wouldn't surprise me at all if Q2 ended up being negative and perhaps quite severely
negative if we actually find ourselves unable to source all the oil that we want even at the
really high world prices, you know, business, for example, is totally dependent on these on so many
areas. If you can't do it, it's going to really hamstring activity, even households, you know,
what you have to spend on petrol to get to work, you can't spend a lot of things. So the real volume
of stuff that gets purchased will fall as well. Do you think that number that's being quoted by
Treasury of the worst case scenario for the inflation from the Iran war being 3.7% is realistic?
No. In the fairness to Treasury, I think the number was probably done a week or 10 days ago.
I suspect if they were doing it now, they'd come up with a materially higher number. I think one
economist I saw the other day said that's probably more like a base case at the moment. Look,
it wouldn't surprise me at all if we saw headline inflation over 5% at some point this year.
That's actually what we saw back in 2008 when oil prices last rose to the really record highs.
It won't endure, but it will be very painful and it's part of the adjustment process. We need
to crunch demand for oil and petrol because the global supply has fallen quite sharply.
