NZ out of recession but still in deep economic hole

Analysis – For a country that had just crawled out of recession, there were not many happy faces on the capital’s streets today.

Perhaps they had not heard the news that the economy grew 0.2 percent in the three months ended March, for an annual growth rate of 0.3 percent.

New Zealand may be out of the ‘technical recession’, but it is still in a deep economic hole.

What did the numbers show ?

First, a health warning. Stats NZ data is always open for revision, but the way it groups and analyses the numbers has been disrupted by Covid-19 which it is still working its way through.

Eight of the 16 industry groups Stats NZ measures showed growth.

On the plus side, the country pumped more hydro power around the national grid; did more DYI and hired the tools to do it; spent a little bit more as consumers but bought a lot of it online from the likes of Temu; sold more dairy exports and logs.

But on the downside, construction, manufacturing, and business services, all key productive sectors, showed sizeable declines.

Businesses invested less, the government spent less, and the income from tourism looks confusing, but Stats NZ is still pondering that.

And there is a mystical item called “unallocated”, a grab bag of statistical bits and pieces such as import duties, which boosted the final number.

Personal share and national incomes

The per capita numbers – the individual share of the economic pie and a broad measure of living standards – fell 0.3 percent, the sixth consecutive quarterly fall, to be 2.4 percent lower than a year ago, and 4 percent lower than the peak in September 2022.

For many households, especially those with tenuous job security or prospects, that may be their own personal recessions.

That is a reflection of the strong immigration gains over the past year with the population rising 110,000 to the end of March, which has masked the broad weakness in the economy.

The real gross national disposable income – the country’s purchasing power – rose 0.9 percent for the quarter, but was still 1 percent lower than a year ago.

Photo: RNZ / Rebekah Parsons-King

What’s to come

Choose your adjective – limp, anaemic, soggy, under-performing, struggling, bumping along the bottom, weak.

The economy has shrunk in four of the past six quarters, and as the economy comes to the end of the June quarter many of the indicators in recent weeks have been gloomy.

Consumer and business confidence levels have fallen to multi-year lows pointing which suggests consumers will keep a tight hold on their wallets in the future.

Other emerging headwinds have included weak retail spending and a fall in job adverts while applications surge.

The latest manufacturing and services sector surveys have activity falling to the lowest levels in more than a decade, outside of the pandemic.

Economists are openly voicing the prospect that the soon-to-end quarter will have negative growth, with not much improvement if any.

The advice one bank is giving – hold on as best you can until 2025.

The RBNZ

The Reserve Bank threatened a recession and delivered, and will broadly regard the latest numbers as proof its policies are working.

But the RBNZ’s heavy hand in the form of high interest rates is still hurting households and businesses, as it squeezes demand and consumption. It may be lowering inflation – more slowly than expected – but it is also strangling growth at the same time.

The latest GDP numbers matched the RBNZ’s forecast in May, but it will need to sift through the details to be more precise on issues such as domestic household spending, tourism spending, and the other statistical “noise” present.

Some small inflation indicators called “deflators” buried inside the numbers have sent mixed signals, with one measure suggesting higher inflation pressures, but another measure slowing.

But in the big picture, the latest numbers probably won’t change the RBNZ’s view of its mission and how to get there.

That means watching, waiting, and worrying, with RBNZ rhetoric dismissing hopes of rate cuts this year, although perhaps when inflation drops back into the target band by the end of the year, it might be tempted to cut earlier in 2025 than its current forecasts suggest.

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