Liam Dann: Don’t panic about worse-than-expected recession

The recession was worse than expected, but don't panic. Photo / 123rf

KEY FACTS:

• New Zealand’s gross domestic product crashed by 1% in the September 2024 quarter.
• GDP per capita fell during the quarter for the eighth consecutive time.
• Stats NZ said activity declined in 11 of 16 key productive sectors.

Don’t panic. That is important. Panicking never helps.

Today’s shocking GDP data confirmed what many of us already intuitively felt – the economy was terrible in the middle part of this year as high interest rates took their toll.

The revised figures – a contraction of 1.1% in the June quarter and a contraction of 1% in the September quarter – were the worst (excluding Covid) since 1991.

But we should remember that this is all history. The reporting of these numbers doesn’t change what we experienced during the year.

The number of business closures, the number of jobs lost – these were what they were. The reality of life in 2024 doesn’t change.

In fact, as Kiwibank senior economist Mary Jo Vergara has pointed out – after upward revisions to the 2023 data – the aggregate size of the economy is not far off what was initially expected.

What that means is the economy was never in a technical recession in 2023. Supporters of the last Labour Government may feel hard done by.

It never quite made sense that the economy was contracting with net migration gains at recorded levels and unemployment near record lows.

Of course, we shouldn’t forget that inflation and the cost of living were causing serious economic pain in 2023.

That had to be dealt with. It was the issue that defined the 2023 election.

If the coalition Government has delivered on one promise in 2024, it has been on beating inflation – albeit in tandem with the tough love of the Reserve Bank (RBNZ).

Now talk will turn to whether the RBNZ needs to move faster to bring interest rates down and pave the way for recovery in 2025.

Economists are divided, with some arguing a 75-basis-point cut to the Official Cash Rate (OCR) is now needed in February and others suggesting the historical revision doesn’t change the outlook that significantly.

There are still reasons to be optimistic about 2025.

The economy has improved since the third quarter. We won’t see if it has bounced out of recession until we get figures for this current quarter in March.

Regardless, as interest rates fall and with the fair winds of a bumper dairy season and strong export prices, things are improving.

Business and consumer confidence are rising. We are through the eye of the storm.

If you survive what you thought was a category four hurricane, only to be told it was category five, there’s no reason to feel less relieved.

In fact, it might cause them to take extra heart.

And so if you survived the economy in 2024, then you deserve a pat on the back: 2024 was clearly a tough year. The new numbers confirm it was one of the toughest.

But as Christmas and summer holidays approach, it is a time to look forward. New Zealand is due a timely break from grim economic news.

There may be more job losses and business failures in 2025 but it won’t be as bad in 2024.

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.