Treasury: post-Covid unemployment forecast of 4% to 6% 'about level of precision you can expect'

Wednesday, 20 May 2020

Treasury forecasts that unemployment could return to 'normal' in a few years have been questioned by the National Party.

Treasury officials have played down suggestions from National Party MPs and some analysts that they have been too optimistic in forecasting the economic hit from the coronavirus pandemic.

Appearing in front of Parliament's Epidemic Response select committee on Wednesday, Treasury chief executive Caralee McLiesh said there were always differences of opinion between forecasters.

There was quite a lot of consensus about the short term impact of the pandemic but there were 'more differences in views about the path to recovery', she said.

Those differences stemmed from 'extreme uncertainty', she said.

'We don't know the path of the virus. We don't know the full impact of government policy.

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'We don't know the longer impacts on people and business behaviour.'

Spread of forecasts reflects 'extreme uncertainty', Treasury chief executive Caralee McLiesh says.

Treasury provided a variety of forecasts in the Budget, and in its central scenario it did not assume any drop in productivity as a result of the virus, she said.

Treasury chief economic adviser Tim Ng agreed 'some of the forecasts put out by forecasters lie below our main forecast'.

But Ng said Treasury's current official forecast that unemployment would peak at 9.8 per cent in September and return to 4.8 per cent by June 2024 was 'not too different' from other forecasts, given the uncertainties.

'All forecasters are predicting a recovery of some sort.

'They are all converging on 4 , 5 or 6 per cent and that is about the level of precision that one can expect.'

Finance Minister Grant Robertson referenced two different Treasury forecasts for unemployment on Budget day.

A spokesman explained that new Treasury modelling that had not been incorporated into official forecasts finalised a month earlier — reflecting a bigger Government fiscal support package — showed unemployment could peak in June at 9.6 per cent and drop back to 4.2 per cent within just two years.

Infometrics economist Brad Olsen is among those who have expressed scepticism about the latter estimate and warned a recovery could take longer.

Treasury's appearance in front of the select committee on Wednesday came amid a row over an email sent on behalf of the Leader of the House Chris Hipkins which advised m inisters and 'senior officials' not to appear before the select committee now that Parliament had resumed.

National leader Simon Bridges labelled the email 'disgraceful'.

A spokesman for Hipkins said the email reflected the fact that ministers and officials could now be held accountable through normal parliamentary channels, such as 'question time' and permanent select committees.

McLeish said she was aware of the email but indicated it had not dissuaded Treasury officials from appearing in front of the Epidemic committee chaired by Bridges — albeit a day late as she was ill on Tuesday.

'We have been invited by the committee and we are here today,' she said.

McLiesh said the Treasury would put out its next set of official economic forecasts in mid-August, ahead of the September election, as part of its pre-election economic and fiscal update.