Editorial: Ominous signs ahead for New Zealand economy

The economy is flat and there are multiple challenges on the horizon. Photo / Janis Smits

EDITORIAL

Yesterday’s fall at the Global Dairy Trade auction is a sign that New Zealand’s economy could face even tougher times ahead.

Dairy exports have been the stalwart sector in recent years, holding up strongly while tourism - New Zealand’s other major export earner - took a battering through the border closures brought on by the Covid-19 pandemic.

Tourism has recovered to around 80 per cent of pre-Covid times but is yet to fully recover. And now pressure is emerging in the dairy sector. Dairy prices were down 2.8 per cent at the fortnightly auction. That was on top of the 2.3 per cent decline at the March auction.

Fonterra - New Zealand’s largest business - is due to report its half-year financials today. Those numbers will likely show the last six months have been pretty good but it will be the forecast outlook that really matters.

Dairy analysts say global milk intakes are falling and prices are trending down, indicating weak global demand.

China is the big challenge. In yesterday’s dairy auction, China only picked up a third of the whole milk powder demand - the lowest level in 10 years.

Other export sectors are also under pressure from lower demand from China. Data from the Meat Industry Association (MIA) shows China is weighing heavily on that sector.

New Zealand’s red meat sector exported products to the value of $759 million in January 2024 - the lowest January result since 2019. Log export prices have improved in recent months but are still well short of the highs seen in 2018/19.

Exporters are having to look to other markets to sell their wares.

Yesterday’s balance of payments data showed goods exports decreased $115m to $16.7 billion, driven by fruit and dairy products in the 2023 year.

New Zealand will find out today whether the country officially slid back into recession in the second half of last year. We’re almost certainly in a deep per capita recession, given the record immigration New Zealand has seen in the last year.

Kiwis are doing it tough. You only have to look at the retail spending figures. Last month, Stats NZ reported retail sales in the December quarter were down 1.9 per cent, with all industries seeing a decline except for pharmaceutical and “other” store-based retailing.

New Zealand’s largest retailer The Warehouse Group yesterday talked about the difficult trading environment. Its chief executive Nick Grayston forecast the macroeconomic climate to “remain difficult”.

“It is challenging to predict how cautious consumer spending will impact sales across all our brands,” Grayston warned.

Interest rates remain high and it’s hard to say when relief will come for mortgage holders. Despite all this doom and gloom, the fundamentals remain strong. The International Monetary Fund says economic activity is likely to pick up next year, mainly driven by improving external conditions - especially through tourism.

They said risks to the outlook for growth and inflation were broadly balanced and urged the Government to deliver a tight fiscal stance in the 2024 Budget.

New Zealand will get through this rough patch - but we will need to keep knuckling down in the meantime.