September 20, 2022

Forecasts from BERL’s 65 years of history

BERL’s forecasts of the New Zealand economy from 1994 to 1999

Economic forecasting is strongly intertwined into BERL’s history. We have generated an enormous number of economic forecasts and projections in our 65-year history.

Sometimes we were spot on, and sometimes we missed the mark. While cleaning up our filing room, we came across a projection report we released 28 years ago, in April 1994. The original document can be accessed here.

New Zealand in the 1980s and 1990s

When BERL released this report in 1994, projecting GDP and employment growth over the next five years to 1999, New Zealand was at the end of a turbulent time in our economic history. From 1984 through to 1995, New Zealand moved from a protected, regulated, and state-dominated economy, to an open, competitive, and market-dominated economy. The New Zealand dollar floated, large agriculture subsidies were removed, the Goods and Services Tax was introduced in 1986 at 10 percent, and state assets were privatised.

During this period, the financial markets also underwent significant changes. Financial market deregulation allowed banks to borrow heavily from overseas to fund home mortgages and increase access to credit. Also, there was a reduction in income taxes, with the top tax bracket dropping initially from 66 percent to 48 percent in 1988, and then to 33 percent in 1989. Company tax was lowered from around 45 percent to 33 percent. During this period, the Reserve Bank Act 1998 was introduced, providing the Reserve Bank with the mandate to keep inflation between one and three percent per annum.  

This was a time of turmoil, with New Zealand experiencing low GDP growth, high unemployment, and low labour force participation. New Zealand was running annual government deficits, with government debt hitting 50 percent of GDP. This changed in 1991, when the National Government decided to cut back government spending to run the first surplus in two decades in 1994. 

Following this tumultuous time, business as usual was not an option in terms of forecasting. The boom-and-bust cycles which had characterised previous recoveries were no longer expected, and previous experience from these past boom-and-bust cycles was no longer a good guide to forecasting the future. 

BERL projections vs what happened

Did we hit the mark in projecting the direction of our economy? Actually, we did not do too badly. In the following table, BERL projections for the 1994 to 1999 period are compared against the actual results from this period, in terms of GDP growth rates, employment growth rates and the unemployment rate at the end of the period.

  BERL Actual
Rate of growth in GDP (%pa) 3.1 3.3
Rate of growth in employment (%pa) 2.0 1.9
Unemployment rate (%), in 1999 6.5 7.3

Overall, the average GDP growth rate for the period was 3.3 percent, nearly spot on with our projection. While the average employment growth over the five years was 1.9 percent, with our projection at two percent. Finally, our unemployment projections were a bit optimistic at 6.5 percent, with actual unemployment rate at the end of the period at 7.3 percent. Across this period, BERL projections were almost derailed by economic events in 1998. This year saw a slowdown in international economic growth, which affected New Zealand, on the back of financial and economic issues in Asia in 1997. This Asian financial crisis was thankfully short-lived with the economies in Asia managing to recover throughout 1998 and 1999. 

Current forecasting

Forecasting is not an exact science and is becoming more and more difficult. Forecasting GDP and employment annual growth rates is still very much part of our core business. BERL continues to publish our own three-year projections each quarter within our Birds Eye View (BEV) publications. The latest projections can be found in the Winter 2022 edition.