Statistics New Zealand confirmed on Thursday what has been apparent for some time: the New Zealand economy is slowing down. But how bad is it really?
Two consecutive quarters of negative GDP growth meets the technical definition of a recession, although that really only matters to the most pedantic among us.
A broader look at the economy shows ultra low unemployment (3.4%) and year-on-year GDP growth (2.2%) above the OECD average of 1.5%.
However, part of that GDP growth has been driven by an increase in the population as net migration has picked up. Economic activity on a per capita basis has fallen much further.
GDP growth adjusted for population growth shows a 0.7% drop in March and a 1.1% decline in December.
Real gross national disposable income per capita, a measure of individual spending power, fell 0.9% in the March quarter, adding to a 2.2% decline in the final quarter of 2022.
Those stats might help explain why a ‘technical’ recession can still be painful.
Nicola Willis, National’s finance spokesperson, said “red lights were flashing” for an “incredibly fragile” economy that was underperforming its peers.
Finance Minister Grant Robertson said such a small decline in the context of such severe weather damage actually demonstrated the strength of the economy.
“Today's outcome fits the definition of a technical recession by the barest of margins. But the resilience of the New Zealand economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term,” he said.
Restore balance
Economists also saw different signals in the March data; some said it would be the start of tough times, while others thought it was little more than a rebalancing of the economy.
Kiwibank’s Jarrod Kerr and Mary Jo Vergara perhaps painted the bleakest picture, with predictions of further declines and an unemployment rate above 5% into 2024.
“Demand is being weighed down by rising interest rates. If households spend less, which is what we are seeing, then the economy will contract harder. If businesses pull back on their hiring and investment, which is what we’re hearing, then the economy will contract harder”.
The brunt of the slowdown was yet to come, they said, as the Reserve Bank tightened monetary policy too aggressively and the global economic backdrop was weakening.
On the other hand, Westpac senior economist Michael Gordon said the annual growth rate was right in line with the forecast.
The quarterly results were highly mixed across sectors, with no clear theme emerging behind the GDP decline.
“This fits with the idea of an economy that is in a transition phase, rather than in outright recession,” he wrote.
The biggest decline was in professional services which fell 3.6%, but that followed a 4.2% rise in the December quarter. Education services fell 1.9%, but due to teacher strikes.
Slowly slowing
Regardless of the noisy debate about what constitutes a recession, it was clear that the New Zealand economy was losing momentum.
“That’s to be expected—indeed it would be staggering if it didn’t happen—in light of the substantial rise in interest rates over the last two years,” he said.
Credit rating agency Moody's Analytics said the technical recession was partly due to disruption caused by the devastating cyclones and flooding.
“But the notable drop in business services over the quarter, which captured declines across numerous industries including advertising and professional services paints the picture of an economy running out of momentum,” said Katrina Ell, a senior economist.
She said the Reserve Bank (RBNZ) had been one of Asia-Pacific's most aggressive central banks, delivering a cumulative 525 basis points worth of hikes.
Core inflation and the labour market would be key indicators to watch in coming months as the RBNZ was “far from declaring victory” over inflation.
“At times like these, monthly data (rather than the extremely lagged quarterly figures currently released) would be invaluable”.
Moody’s expects NZ’s gross domestic product will shrink by 0.7% across 2023.
Sharon Zollner, chief economist at ANZ, said it was hard to diagnose the recession as anything other than a necessary adjustment after too much fiscal and monetary stimulus.
Unemployment is still at a near a record low, non-tradables inflation at a record high, and the current account deficit at unsustainable levels.
While hard to prove a counterfactual, she said the headline growth would likely have been positive if the cyclone hadn’t hit during the quarter.
Nothing to trivialise
Stephen Toplis, head of research at BNZ, said this recession was always inevitable and it demonstrated the Official Cash Rate had gone high enough.
“We are quick to note that the data continues to be very noisy, buffeted by cyclones, seasonal adjustment issues, teachers strikes and surges in migration and tourism inflows”.
Recent Ministry of Business Innovation and Employment figures show 17,319 people arrived in NZ on work visas in May. That's only down 5.1% from pre-Covid days in May 2019.
But BNZ believes the economy will have at least one, and probably two more quarters of decline before the year is complete.
Toplis said it was hard to sympathise with people who attempt to trivialise the economic correction as being purely technical or insignificant.
“Sure, the downturn has not resulted in a significant number of layoffs, nor is it likely to, but it doesn’t mean the correction that is occurring doesn’t hurt”.
Forestry and logging has now been declining for seven consecutive quarters and total manufacturing has declined for five quarters in a row. It is not technical for people in those sectors.
50 Comments
"...people who don't work and aren't counted as unemployed. "
Has been called "the missing million" here in the past.
ABC News in Oz had a series of articles on the calculation bias a few years ago, I haven't seen similar in NZ however we use the same calculation as Oz
https://www.abc.net.au/news/2021-10-17/why-are-millions-of-unemployed-p…
How crazy is it that the RB have to crash an economy inorder to save it from poor governance!
It compares to purposely bankrupting your business inorder to get Bailed out... and that doesn't happen !
Time to fix this broken ass country.
Focus on needs, cohesion, and living within your needs not wants.
Ditch MMP
Ignore dumb minorities wants
Remove the divisions in society starting with ending the Treaty grevience industry's
Pay down debt, budget your needs " no lolly scrambles for votes"
No unmandated policies on the hoof
no more coalitions of expensive nothingness.
Vote ACT
We wish
Reality is that there is no sign of an NZ party or government that has any ideas or vision. Other countries (e.g. UK) are in a similar mess.
That said - its really down to individuals and organisations to take accountability for their own actions and make things work anyway - i am getting a bit sick of the 'victims' of rising rates, of falling house prices, of poor life decisions (leading to poor health) of kids getting a poor education, of teachers striking too much because their pay is and has always been low.
The way to solve one's problems is the same as it has always been via action, self-growth/education or voting with one's own feet.
- borrow what you can accounting for YOUR (not what someone else says) research and expectations of rate rises/falls
- be sure to spend time with your kids to make sure they are getting a good education or find ways to help them
- make sure you are in your BMI, fit and healthy to minimise health issues regardless your race/age etc
- choose your career wisely.. teachers have always been paid reletively low salaries and worked hard, sales people get a lot if they work hard - bankers too... balance the risk of being fired in a recession.. get a good education so you can choose.. and work hard.
- use your vote wisely and influence others
- most fo all - when you start to have thoughts about whose fault it was that you are where you are.. RECRAFT them.. so as (not to blame yourself) to think of how you could have better acted to avoid the situation.. and use the learning next time.
Not saying everyones situation is their own fault.. but 90% of them could have, and could now make better decsions to avoid their mess.
Who do we ever believe?
The truth is
House prices are too high compared to income.
The price of food is too high to feed healthy and fresh to family.
Crime is high and do not feel safe as used to 15 years ago.
The economy doesn't swing positive or negative as much as media and premature born economists write about it.
We have become so risk averse that we jump high on false conclusions.
That's about it. I will stop my crying.
Faith in the system is probably at an all time low.
Can anyone see things getting more prosperous and affordable anytime soon?
Probably a good inflection point for people to re-assess how dependent they want to be on the larger system. Economies of providing for yourself are starting to shift.
Maybe people need to relocate, but not necessarily geographically.
Great post; nicely put.
This is the Great Turning - slower to impact than I though back in 2008, but inexorable. Pity we are still members of a chosenly-blind religion, discussing homes for little children above a bright blue sky, situated above a flat earth.
Economics. So much to answer for, so few answers. Such massed ignorance.
This is the Great Turning
I think it's part of a large continuum. 08 was the catalyst for me to shift away from conventional approaches. I sorta felt though things would take longer to deteriorate than they have.
But I think rather than a big bang, it'll be a balloon slowly leaking air. We might get some sort of fiscal magic get us out of this one, and maybe the next. But the trajectory is there.
Faith in the system is probably at an all time low.
This is the biggest failure of Labour and the RBNZ. In order for a governing body to be effective they need to be credible and have the public faith, otherwise we would all simply do whatever we wished and chaos would ensue. Possibly why the crime has increased as there aren't enough consequences for those committing them.
If we are to weather this recession, we need to restore faith in our central government and the only way that will happen is by hard decisions being made, and cutting all virtue signaling and media spin. I can't see this happening by Labour as much as Hipkins tries, as he has already failed in his previous portfolios so has no credibility to look back on.
Probably a good inflection point for people to re-assess how dependent they want to be on the larger system. Economies of providing for yourself are starting to shift.
Definitely, there are many i know who are growing gardens that didn't before, much more trades happening between friends e.g fruit for veges or services for services. Many realise we've all been told to rely on and trust the system since COVID times and now you can't do so without having an alternative option
You can blame the Ardern leadership and tge Green policies for advancing the degeneration of society's standards so quickly!
They have wasted billions on things we dont want nor asked for and ignored what we need .
Crime, education, health, farming, policeing, polytechs, universities, mental health, race relations, infrastructure, ... all tampered with by Ardern and Hipkins and aĺl buggered.
I see ACT want to pull farmers out of the emissions trading scheme until the big polluter countries commit to the scheme!.. BRILLIANT!
https://www.act.org.nz/act_is_standing_up_for_rural_new_zealand
I see ACT want to pull farmers out of the emissions trading scheme until the big polluter countries commit to the scheme!
Yeah that is probably prudent. I would much rather government make a stand on cleaning up our local ecology like our rivers while still making an effort on climate change. Our rivers are bloody appalling, and our drinking water is full of nitrates. The issue is getting mangled in with 3waters, and more needs to be done otherwise we will have decades of clean up in the future.
I'm not bagging act, because I really like some of their policies, but I don't think act is standing up for rural NZ insofar as the long term impact of the environment and our drinking water, correct me if I'm wrong!
NZ’s marginal nominal GDP decline has also occurred in the context of accelerating population growth. Economic activity on a per capita basis has fallen much further.
GDP growth adjusted for population growth shows a 0.7% drop in March and a 1.1% decline in December.
This is something that deeply troubles me as I observe the organisations around me, even at management level. Absenteeism is up, motivation is down, so collectively we are producing less with more.
Will things turn around as the recession pressure comes on?
I worked for a company that provided unlimited (almost anyway) annual leave.
Management spent all their time bullying people to take time off. I kid you not.
People did take leave though. Usually a month or two. To be honest - it was fricken great to have a nice long break every couple of years.
Hard to maintain motivation when real incomes are rapidly declining due to inflation. Latest rubbish bill through…..13% price increase as a result of government levies etc. prices in grocery climbing, rates and insurance about to explode. I don’t know how people are going to manage with mortgage rates climbing.
This is a permanent recession, sorry. There may well be roller-coaster blips, but the trend is inevitable; gravity will win.
Yes, the middle are being hollowed-out via debt - they follow the lower class who were wrung dry (sub-prime, anyone?).
But the upper class are next. The whole system is on the way down/out.
Through is not the right word - it implies a recovery.
I am a big believer in the Kondratiev waves or supercycles, Surely we have just seen a debt supercycle, that they tried to stop global deflation and collapse in 2008/9 with money printing (QE is such a cop out). Its now created inflation, the fix will again expose the world to deflation and collapse. There is no ability to repay the debt and now we struggle to even pay interest on it.
Much like the collapse of the soviet union, our current debt saturated global capitalistic system cannot survive in its current form. The question is what will replace it?
A bipolar world with Russia/China vs the Rules based , going to be hard for NZ having so much Dependance on exports to china and so much debt supporting that economy here. Turning our back on China is sure financial suicide.
It's definitely been a testing few years. I've got more demand than I can shake a stick at, leading the market with my firms competetive advantage of "at least we'll turn up when we say we will".
It's going to get tougher, those with an eye for opportunity will do well but if you need people power to grow it's going to be tough.
Indeed, the younger generation will lose motivation and have higher anxiety and depression, the older generation will knuckle down and get on with it. Current wait times can be 6 weeks-3 months to get in to see a private psychologist depending on where you are in the country. Once the unemployment cranks up we will see productivity increase as people will be squeezed by management for it given the increase in workers to choose from for employers. Focus on wellbeing will shift to productivity, KPI's etc and a dose of reality for many will humble them.
Please! Younger generations are match fit for this.
Entering the workforce during the 2008 GFC. Low salaries, unprotected industries and high costs. It will make literally zero difference.
It’s the older generations who have become used to the comforts delivered by “equity mate” who are in for a wake up call.
To your other point improvement in management and smaller teams will see your “entitlement” mentality disappear without fuss.
I see no entitlement mentality as I have no assets for equity, perhaps I should have clarified as I was referring more to GenZ when I said younger. The generation which has come into the workforce to learn you can command a decent salary doing not a lot if you choose to.
I myself started working during the GFC, and and remember the vast number of applicants applying for near every job I did, and I have seen what I described happen before, and it will happen again irrespective ones' views.
Middle management will take a rinsing and those leftover will be grilling for productivity to make themselves look good as always. It's all cyclical.
Yes it is were is the stats on age in the workforce of people who are sick the most. I would bet money very few of the over 65s a sick but show up for work. Yet the self entitled 20 yr old hard done by no work ethic but knows everything is sick at the drop of a hat. Know several business owners who want more over 65 workers big reason is you can count on them. Oh but how dare they people say taking jobs of the young ones and getting the pension as well. Never mind that they pay secondary tax on it)
That would be a good reality stat to have
View on NZ inflation from Oz
https://www.abc.net.au/news/2023-06-16/nz-enters-a-recession-as-economy…
Well I guess this is like when you're at the doctors and he's just put on another set of glove and says to you,"stay there. I've still got a few more minutes to kill so Ill give you your moneys worth and check if there are any internal problems. It may hurt a bit."
I say abandon ship to Australia, leave Aotearoa to the Mongrel Mob and their kin. Its not going to get any better even with a change of Govt, the moral code of this country has gone when criminals are treated as the victims, gangs control entire towns, and the proposed solution is to strip the few productive and successful people left here of their wealth to give to those who contribute nothing to society. It's depressing. Maybe they should put Prozac in the water instead of fluoride?
Good to see non-Bank economists being quoted. Quite frankly, anyone who believes bank economists aren't speaking with a forked tongue is either just out of nappies or gets all their financial information from social media. For example,
Moody’s expects NZ’s gross domestic product will shrink by 0.7% across 2023.
I expect Moody to be correct. Meanwhile, bank economists continue to say "things aren't that bad" as they try and sell mortgages for vastly expensive / overvalued real estate.
Bank economists - IMNSHO - give all other economists a bad name.
Anyone out there actually know of anyone that Stats NZ samples for the 'unemployment and under-employment' survey they do to establish the unemployment stats?
Call me cynical but I have this vision of a guy coming up with these numbers based on social media analysis.
I think its like Julie Genter, as in "I believe" overrides the mounting evidence that proves the opposite. Evidence such as the number of people on JobSeeker Work Ready has increased by 54% under Labour (from 63,048 in March 2018 to 96,885 in March 2023). A 25% increase in the number of people on the single parents benefit, and a 29% increase in the number on the "Disability" benefit. The percentage of the working age population on a benefit has gone from 9.2% to 11% - the only growth Labour has overseen in 5 years is in welfare dependence and tax collection.
This is Dame Jacinda's legacy.
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