Up or down? New data will show New Zealand's economic performance.
Up or down? New data will show New Zealand's economic performance.
Is the recession over? We find out on Thursday when Stats NZ releases GDP data for the March quarter.
Economists are divided. Westpac, BNZ and Kiwibank are all picking another contraction (-0.2 for Westpac and -0.1 for BNZ and KiwiBank)
But href="https://www.nzherald.co.nz/topic/anz/" target="_blank">ANZ and ASB say we’re out – just – picking an expansion of 0.2 and 0.1 per cent respectively.
The numbers are marginal and no one is suggesting the economy is anything other than flat. And on a per capita basis, GDP went backwards by everyone’s numbers.
“On our forecast, GDP will have fallen in five of the last six quarters,” says Westpac senior economist Michael Gordon. “All those declines have been quite modest, but they’ve come at a time when the country has seen the strongest population growth in its modern history, with inward migration playing catch-up after three years of the border being closed.
“As a result, GDP per person has fallen by 4 per cent from its 2022 peak and is set to fall further over this year.”
Rather than signalling a deep recession, that decline reflected how overheated the economy had become in the first place, Gordon said.
“Indeed, on the RBNZ’s [Reserve Bank] estimates, the economy is only just now falling below its non-inflationary potential, an essential condition for bringing inflation back to target.”
But the topline GDP number matters for two reasons. One is that it if it is negative, headlines about recession can potentially add to the gloom as consumers pay more attention to the grim state of the economy.
The other reason is that the Reserve Bank’s forecasts are for a 0.2 per cent expansion of the economy. A prolonged contraction could force the RBNZ to shift its equations and presumably its track for rate cuts.
“A flat to negative outcome would be a touch lower than the RBNZ’s 0.2 per cent published in its May Monetary Policy Statement”, said BNZ senior economist Doug Steel.
“We wouldn’t judge that has a major difference given the noise in the data, but a nod to the softer side. If that is how it turns out, we would be a little cautious on translating that fully and immediately to how the bank might see its influence on inflationary pressures. The RBNZ recently altered its view on potential growth and if it were to do so again it could offset observed weakness in growth.”
Miles Workman, senior economist at ANZ.
As was always the case, it would be the underlying details that informed the RBNZ’s view of what it all means for economic momentum and CPI inflation pressures, said ANZ senior economist Miles Workman.
Despite picking a small expansion in topline growth, in line with the RBNZ, ANZ’s outlook is hardly cheery.
“All in all, the GDP data are expected to provide further confirmation that underlying economic momentum is weak and consistent with continued disinflation,” Workman said.
“The net migration cycle has turned, the labour market is loosening, consumers and businesses are downbeat, the housing market is subdued, the terms of trade is well below its peak and global demand is sub-par.”
ASB’s Kim Mundy was also careful not to sound optimistic despite picking a small bounce.
“The [first quarter] print is likely to result in many ‘no more recession’ headlines,” she said.
“And while this is arguably a nicer read, it may prove cold comfort to those facing weak demand amid New Zealand’s cost-of-living crisis and heightened economic uncertainty.”
“More importantly, a small rise in activity in the quarter isn’t being driven by any significant structural changes to NZ’s economic outlook. Long story short, we expect the economy to continue to oscillate between small rises and falls until there is a pronounced change in the economic outlook (i.e. monetary policy starts to ease).”
KiwiBank economists manage to find some light in the darkness despite picking that we’ll remain in recession.
“It’s all pretty sombre but the weakness we see and feel is all by RBNZ design,” they say in their preview.
“The RBNZ needs to see subdued growth in their fight against the inflation beast. And subdued growth is what they’ll see. The RBNZ’s heavy hand continues to hurt households and businesses.”
Restrictive monetary policy was clearly working, they said.
“So long as interest rates remain elevated, growth will remain subdued. And that is the outlook for majority of this year.”
But they noted that a more downbeat GDP number could make for a quicker path to lower interest rates.
”Interestingly, though we’re living in a strange era where bad news is in a way good news. Because as the economy slows down inflationary pressures are squeezed out. And the sooner we see inflation back within the RBNZ’s 1-3 per cent target, the sooner the RBNZ can deliver rate cuts. As interest rates are relaxed, confidence among households and businesses should build. And the economy should regain momentum.”
Full coverage of GDP data here at 10.45am on Thursday.
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.
