Thanks to surprisingly weak December quarter Gross Domestic Product (GDP) figures, only one question will be being asked before release of March quarter GDP data in the coming week.
Yes, it will be the inevitable 'are we there yet?' - with the 'there' referring to the possibility of New Zealand being in recession.
Remember, the December quarter figures, released in March, showed that the NZ economy had shrunk by 0.6%, which was quite a surprise. The Reserve Bank (RBNZ) had forecast positive growth of 0.7%.
A 'technical recession' is two consecutive quarters of a shrinking economy. So, it follows that if our economy has gone backwards again in the March quarter, then there's your recession.
Well, we'll find out on Thursday, June 15 when Statistics NZ releases the March quarter figures. If NZ does indeed find itself in something beginning with 'R' then expect to hear quite a lot about it. The mainstream media will shout about it. There's great shock value in that word.
But really, even if we do prove to currently be in recession, we shouldn't get hung up on the 'R' word - because in itself it's fairly meaningless. The economy doesn't shrivel up and die because it's got 'R' disease. It means the economy has shrunk, possibly not by very much. That's all. Not the end of the world.
It's a matter of degrees. There's recessions and recessions.
I'm not sure how well people remember even though it wasn't long ago, but the last time we technically entered recession was as recently as June 2020. In fact the June quarter of that year saw our GDP contract by an eye-watering 10.3%. Yikes. However, we did that to ourselves. It was the original Covid lockdown of course - and we blasted straight back with 13.9% growth in the September quarter of that year. Recession? What recession?
Prior to that last technical recession in 2020 the most recent one we had was one I would bargain that most people missed. It was the third and fourth quarters of 2010 and the economy shrank by 0.2% and 0.5% respectively. Blink and you miss it.
Now that was what I called 'a recession'
However, you couldn't blink and miss the five quarters of negative growth that we saw in 2008-09 in the aftermath of the Global Financial Crisis. And those of us with rather longer memories struggle to forget the very-grim-indeed period from the late 1980s through the early 1990s in which the lowlight was a 2.4% fall in GDP in just the first quarter of 1991. By later that year unemployment was nearly 11%.
And it is the last sentence above that is the key. At the moment unemployment is just 3.4% making this economic slowdown we are now entering into very different to previous such periods.
Yes, unemployment is expected to rise, with the RBNZ expecting it to hit 5.4% by the end of next year. But the very low starting point to unemployment is what's underpinning thoughts that any recession may prove to be a shallow one - and indeed that we might even be able to avoid one. If people still have jobs, obviously they can battle through tougher times and keep paying the mortgage etc. On the contrary, large numbers of unemployed people lead to spending grinding to a halt, which slows the economy even further.
The RBNZ, which surprised people more than a little by conceding late last year that it was attempting to engineer a recession through its interest rate hikes, now expects just the mildest of mild recessions. And not yet. Later.
It is forecasting positive GDP growth of 0.3% for the March quarter. So, if it's right we are not currently in recession. However, hold your horses - the RBNZ's forecast in the May Monetary Policy Statement is for the economy to contract by 0.2% in the June quarter and by 0.1% in the September quarter (recession time!), before we get a stagnant 0.0% reading in December. So, the mildest of recessions - the central bank thinks. But the central bank also thinks the best we will do in any quarter during 2024 is 0.4% growth, which is not exactly shooting the lights out in terms of growth.
Therefore, it may be that we have an ongoing discussion about whether there will be a recession or not - but the economic environment is not going to be great whatever the outcome.
But all that is for the future.
In terms of how we did in the March 2023 quarter, its fair to say the signals ahead of the GDP figures being released have been pretty mixed and this could go either way. We may have snuck in with a teeny tiny bit of growth, or we may have gone backwards by an equally teeny tiny amount. I'm not feeling bold enough to call it either way. At time of writing I had seen just two of the big bank economists' forecasts for the GDP figures and they were both tipping positive figures - just.
Looking for clues
Looking at the economic 'partial indicators' that have been released ahead of the GDP, one notable was that retail sales went backwards for the second successive quarter. Sales by volume dropped 1.4% on a seasonally-adjusted basis in the March quarter, following a 1.0% drop in the December quarter.
Against that though, building activity possibly fared better than expected, with building work put in place up a seasonally-adjusted 0.6% in the March quarter. Clearly though, looking ahead, all the signals are that the building sector is looking at a substantial downturn in activity in coming months.
Business data also painted a mixed picture. Just six of the 14 industry categories Stats NZ covers saw seasonally-adjusted sales growth in the March quarter. The manufacturing sector saw a 2.8% drop in sales, seasonally adjusted, while wholesale trade sales slipped 0.3% in the quarter, again seasonally-adjusted.
But the labour market is still looking hot, with filled jobs rising 1.1%, seasonally-adjusted, in the quarter. Such a performance at a time when the economy is definitely slowing would again suggest the impact of the surge in migration, with the inbound people filling vacancies that simply couldn't previously be filled when the border was closed. It is the satisfying of pent up demand.
So, that's the background and the very mixed picture we see. What are the economists saying then?
ASB economist Nat Keall notes that GDP data are "backward looking and prone to revisions" at the best of times, "but it’s likely to be an especially lumpy quarter with Cyclone Gabrielle’s impact crimping activity in some sectors of the economy and boosting it in others".
The ASB economists are picking the economy lifted by 0.1% for the March quarter. They earlier expected a potentially protracted recession starting in 2023 and heading into 2024, but now no longer expect one at all "though we are far from confident in that view".
"We’re not unique in that analysis, with both the Treasury and the RBNZ revising their own growth forecasts higher. The economy still faces a myriad of headwinds that will weigh on output – namely slowing global growth, soggy household balance sheets, and restrictive monetary settings – such that we still expect growth to slow over 2023 relative to 2022. We’re expecting growth to be pretty meagre, and it wouldn’t take much to tip things into recessionary territory.
"...Still, it will feel like a recession for many. Growth is set to be uneven over the coming year, with stronger population growth and more fiscal stimulus set to have a marked impact on some sectors, and a less meaningful influence on others. Construction, retail, transport, real estate, health care and recreation are the most obvious beneficiaries. Sectors like manufacturing and agriculture – which have already suffered several contractionary quarters – face less upside. How the next twelve months ‘feel’ will depend a lot on which sectors your business, employer and household are most exposed to.
"What’s more, we still expect a ‘per-capita’ recession. Strong net migration is set to prop up output in an aggregate sense, but GDP growth per person looks more likely to go backwards given the broader economic headwinds facing individuals, households and businesses. Our current outlook sees real GDP decline on a per capita basis not only this quarter, but also Q2 and Q3 2023 as well," Keall says.
ANZ economists are picking that the economy grew 0.2% in the March quarter.
"Economic momentum has clearly slowed, but the Q1 data will have its fair share of noise, complicating the diagnosis," ANZ senior economist Miles Workman says.
"Some of the partial GDP indicators suggest cyclone Gabrielle impacts could be a little more significant (and negative) than our assumption, but very strong population growth (on the back on net migration) and less seasonal pressure on economic resource in Q1 could more than offset that.
"Putting it all together, there’s a lot to get your head around in the Q1 GDP figures. A weak read could be a signal that Q2 growth will bring a solid rebound (cyclone impacts), while a strong read could reflect more bounce from Q4’s weakness than expected (a noise/easing capacity story). Or perhaps both these scenarios will play out and offset. Either way, we do expect to see evidence that underlying momentum is subpar, particularly in per-capita terms.
"While our forecast is for the economy to avoid picking up a technical recession handle in Q1 (ie two consecutive quarters of negative growth), this is certainly within the realm of plausible outcomes. Should that occur, it’s important to note that a lack of economic resource (particularly labour) is at least partly to blame for current growth headwinds. The sniff test for a genuine economic downturn is an elevated unemployment rate. That may yet happen, but unemployment in Q1 was near a record low," Workman says.
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18 Comments
GDP says nothing about our collective quality of life etc - it is literally a measure of how much stuff we produce / consume in total. What matters is how well we are utilising our real resources (people, equipment, materials, etc) to support people to live well, contribute, and move the country forward. We are failing on so many measures here. We are destroying our ecosystem, tens of thousands of families are in desperate poverty, hundreds of thousands of people live in housing that comparable countries to us would consider unfit for habitation, and our economic system is broken - seemingly designed to enrich the few and enslave the many in bullshit, low skilled jobs.
The fact that RBNZ will be welcoming more people being out of work tells you all you need to know about how cooked things are. Imagine any human society in history thinking that leaving people idle and hungry was the answer to a mismatch between supply and demand?
For what it's worth, I expect a contraction this week. It's only a tight call because we have had a positive impulse from tens of thousands of migrants. Also worth noting that RBNZ's attempt to loosen the labour market by making people with mortgages poorer and savers richer is having a really uneven impact. The South Island and Auckland are still in growth mode, but the rest of the country is in a serious slump. Look at the regional retail data and filled jobs data. The ethnic impact is also pronounced - with Māori unemployment already picking up sharply in many areas.
Yet there is still no parking at the local Mall as soon as the sun comes out. Full of people still buying up shit, not been for years myself just had a coffee and watched the madness go by. Maybe I'm getting old, but then again maybe I just buy so much online these days.
GDP says nothing about our collective quality of life etc - it is literally a measure of how much stuff we produce / consume in total.
Our society is now based on hard materialism, as opposed to something metaphysical. So the base assumption is that more is better. And it kinda rings true, the places with more money floating around have better facilities and services.
How the money is distributed and how much additional benefit it brings is another matter entirely. The same goes for our own personal circumstances.
Totally agree.
We have been conned into believing certain numbers are relevant to our daily lives. Alas, most simply do not know what these numbers mean but they quote them again and again as if they do mean something to 90% of our population.
For example, banks make a fortune taxing you with impunity and sucking money from your pocket. You go along with it - complaining about housing costs - but you're powerless to do anything about it. You must own a house because you've been conditioned to believe that's what you must do.
Banks (and landlords supported by banks) are only just behind the government in terms of how much money is sucked from your pocket for many people. And yet - they contribute to GDP so that must be 'good'. But is it?
Perhaps future GDP numbers, for what they are worth, might reflect the number of New Zealanders that no longer have to work? As we retire en masse, we keep the capacity to spend without the need to work. Either via the backstop of national super or the progressive liquidation of funds stored in past purchases - selling down the portfolio in other words. Even cashing in the growing Kiwisaver balances will add to production free consumption. If so, we can expect the unemployment figure to stay historically low even if spending moderates.
He Became the CEO by being the yes man.
He only knows one thing, to agree for what ever shit is coming from top and then pass it on down.
And Its NZ mate, don't need to think to be a politician. Just say what ever and kiwi lambs think you are the smartest person alive.
GDP will be between -0.25% and -0.75%, And there is a not-so-small chance it could be worse.
The real shocker will be come with unemployment figures which will show unemployment rising, particularly among the 'under-employed'. Most businesses that I know are not replacing workers when they leave unless absolutely necessary, and a few are actively encouraging workers to look for other work because the writing is on the wall. In between, a few are changing roles to 'part-time' and helping workers to find jobs outside the organisation to top-up lost wages.
I work in freight and logistics, mainly export/import, and June is shaping up to be the quietest month we have seen in a very long time. Even allowing for seasonal variation of dairy exports, most companies in most industries are importing and exporting less than they have done for June in the last few years.
Also following job listings in the logistics and transport sector I’m seeing a lot less new job listings, a lot of companies are hitting pause on hiring and employees seem to be thinking the time for changing jobs to chase $$$$ is over.
Whether GDP grows or shrinks, and whether by a small or large percentage, means very little to most people.
Perhaps it is an indicator of future performance, but even a shrinking economy may or may not affect your place of employment.
Granted, a corporations sole purpose is to make profit for it's shareholders, be they public or private, and that means increasing revenue and/or reducing costs.
The biggest cost to a business is wages, which would explain the hiring freeze and the early retirements, and the increases in supply chain costs are why we are seeing increasing revenues, as companies make efforts to maintain margins over external cost factors they cannot control.
That is all country-wide economic activity.
To the general public, all they see is that their weekly shop is $50 more. That their power bill is $50 more per month. That their childcare is $50 more per fortnight. That their mortgage is $500 more a month.
What they don't see is their income increasing to cover these inflated costs.
CPI is still high, 6.7% for the March quarter, but because of the threat of a recession, I very much doubt companies are going to be offering a 6.7% pay rise to every employee this year, except minimum wage workers who are getting 7%, but they may very well cut their hours to compensate.
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