After two quarters of contraction, has the economy rebounded - and can it last?
After two quarters of contraction, has the economy rebounded - and can it last?
New Zealand’s economy most likely bounced out of recession in the second quarter of the year, economists say.
Two consecutive contractions, in the fourth quarter of 2022 and first quarter of this year, saw New Zealand enter a technical recession.
But estimates for the June quarter GDP (gross domestic product),due on Thursday, range from growth of 0.4 per cent to growth of 0.8 per cent.
“We’re expecting payback for the capacity-constrained, cyclone-caused, stunted growth over the summer period. We expect output rebounded 0.6 per cent over [the second quarter],” said Kiwibank senior economist Mary Jo Vergara.
“Per capita growth however is likely to be soft. Population growth has picked up the pace with the resurgence of migration. It’s likely we see a further slide in per capita output in [the second quarter].”
Strong activity across much of the service sector has been on show, but both agriculture and manufacturing are looking less flash, said economist Nathaniel Keall.
“Broader growth headwinds remain clear and present - particularly from offshore - and we still anticipate output will be pretty anaemic over the second half of 2023.”
ANZ took the gloomiest line, describing the rebound as a “dead cat bounce” - reference to popular stock market slang for a false rally, before a troubled company resumes its slide.
“We’ve pencilled in a 0.4 per cent quarter-on-quarter economic expansion, a touch below the RBNZ’s [Reserve Bank] August MPS forecast of 0.5 per cent,” said ANZ senior economist Miles Workman.
“Economic momentum is clearly softening despite strong population growth, but the GDP data will still have a fairly wonky signal-to-noise ratio, reflecting lingering cyclone and Covid impacts.”
Westpac was the most upbeat, picking 0.8 per cent growth.
But senior economist Darren Gibbs also noted that the growth was underpinned by strong net migration.
“With population growth running at an annual pace of about 2 per cent, our estimate implies that real GDP per capita has contracted over the past year,” Gibbs said.
ANZ senior economist Miles Workman.
Annual net migration hit a new record high in the year to July, above 96,000.
“Perhaps a better indicator of the economy’s momentum will be annual growth in GDP, which we expect will slow to 1.5 per cent from 2.2 per cent in the March quarter,” Gibbs said.
Despite the resilience of the economy over the past quarter, there were serious headwinds ahead, said ASB’s Keall.
“We still expect growth to remain largely anaemic over the next 18 months,” Keall said.
“While we’ve felt some of the influence of those mounting headwinds, we’ve not felt their full force, in our view.”
For example, the RBNZ may have stopped increasing interest rates, but the average effective mortgage rate wouldn’t peak until early 2024, with at least another 70 basis points or so still to come from its current level, Keall said.
The impact of the deceleration in the Chinese economy is also yet to be felt, he warned.
The most timely data continued to show growth underperforming expectations and Beijing reluctant to deliver much stimulus, Keall said.
“While economies in other parts of the world have surprised to the upside - notably in the US - the trade-off is a negative for New Zealand, given China’s substantial share of our exports.”
Recent travel data also suggested that visitor arrivals have not only levelled off but begun to trend lower, with Chinese visitors still largely absent, he said.
“While highly uncertain, annual net migration looks set to peak in the coming months and does not look to be providing the boost to domestic spending we would have expected.”
Finally, fiscal policy could be about to become more contractionary, depending on the outcome of the election and the subsequent government formation negotiations, he noted.
Economists cautioned against reading too much into the data with regards to Reserve Bank policy and interest rates.
“Capacity indicators like unemployment and QSBO Quarterly Survey of [Business Opinion] capacity utilisation are more important for the RBNZ’s estimate of domestic inflation pressures than GDP per se,” said ANZ’s Workman.
“If GDP significantly surprises to the upside, it may be difficult to diagnose how much of that is noise (eg rebound from cyclone disruption) and how much is signal.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
