Backwards, forwards or sideways. Which way will it be for GDP?
In the coming week (Thursday, September 21) Statistics NZ will be releasing GDP (Gross Domestic Product) data for the June quarter.
This is the last significant piece of economic data to be released prior to the October 14 election. September quarter Consumers Price Index inflation figures will be coming out just after the election on October 17.
The June quarter GDP figures will be quite 'old' information, but that won't necessarily stop them being a useful political football in the heat of the election campaign.
This is particularly so because of how we find ourselves placed in respect to the recent past GDP releases. The December quarter 2022 GDP result showed 'negative' growth, of -0.7%. This was followed by another minus result of -0.1% for the March quarter.
It is generally accepted in the world of economics that two consecutive quarters with a minus sign in front of them constitutes a 'technical' recession. So, by the narrowest possible of margins we are 'technically' in recession. In a real sense this has all been a bit meaningless. But no question, in an emotional sense, there's some powerful drama in the 'R' word.
Between lingering impacts from the pandemic and other events such as those weather issues earlier this year, a lot of the economic data being produced in recent times has been what economists like to call 'noisy' - with one off disruptions and to some extent also with data difficult to measure at times. This means that revisions to the data have and will be a 'thing' for some time.
This is mentioned because as I've said before it's entirely possible that in conjunction with the release of the June quarter GDP figures, Stats NZ may well revise the previous quarter's results. This is worth bearing in mind because if the March quarter figures were revised UP by any amount at all it means the -0.1% initial GDP reading would be wiped and it means by extension that we would NOT have had two consecutive quarters of negative GDP growth - and therefore no 'recession'!
But anyway, let's assume for the moment the December 2022 and March 2023 quarter negative GDP figures remain. That means the figure for the June quarter will either see the 'end' to the recession - or a continuation.
So, to go back to those politicians and thinking about what's grist for the election mill, if in the coming week our economy is found to have gone backwards for three quarters in a row, well, great fun and games. Opposition politicians are going to have to perform that neat trick of pretending to be dismayed while actually delighted!
In truth though it seems that opposition MPs are more likely to be disappointed. That's because economists are picking that there will be some sort of a reasonable bounce-back in the figures for that June quarter. Remember, the March quarter was affected by events such as the Auckland Anniversary Weekend flooding and Cyclone Gabrielle and the subsequent disruptions based on those events - so, the June quarter is seen as offering some sort of a bounce from that.
The Reserve Bank is picking that GDP will have grown 0.5% in the June quarter. At time of writing I had just one of the picks of main bank economists in front of me, but general opinion among the economists seems to have been coalescing in the range of 0.4% to as much as 0.8% growth for the economy in the second quarter.
The various economic indicators leading up to the release of the June quarter GDP figures have definitely been a mixed bag, but there's been enough positive surprises and evidence of resilience to suggest that the GDP reading will be well into the positives.
To look at just a few indicators that have come out in recent weeks for the June quarter, the merchandise (goods) terms of trade rose 0.4%, which was a much stronger result than was expected. The volume of total manufacturing sales rose 2.9%, following a 1.8% fall in the March 2023 quarter. When adjusted for seasonal effects, the total value of wholesale trade sales fell 1.2% ($458 million) in the June 2023 quarter, following a 0.5% ($207 million) fall in the March 2023 quarter. The amount of building work put in place fell in the June quarter. Retail sales fell in the June quarter. It's the third fall in a row.
Time for an economist's view...
ANZ senior economist Miles Workman, who is picking 0.4% GDP growth for the June quarter, said economic momentum is clearly slowing on the back of the 525 basis points of hikes to the Official Cash Rate (OCR) delivered by the Reserve Bank since late 2021 and taking the OCR to its current 5.50%.
"A weak underbelly is expected to be particularly evident in the per capita data, which is expected to post another quarterly contraction (-0.2% quarter-on- quarter) as population growth of 0.6% q/q outpaces headline activity. In annual growth terms, the widening gap between headline and per capita growth shows New Zealand is back to its pre-pandemic trick of population growth bolstering growth in headline GDP," Workman said.
He said while GDP is expected to "eke out a small expansion" in the June quarter, momentum is weak and that’s unlikely to change any time soon.
"Looking forward, the bigger picture for the economy isn’t likely to be a pleasant one until it’s clear that the RBNZ have domestic CPI inflation under control. And for that to happen, economic activity will either need to remain sub-par for a while yet or some other nasty shock would need to come along on the global front, doing a lot of the RBNZ’s work for them. It was good to see some stability in dairy prices over the past fortnight, but China risks to our export sector remain front and sector in this regard."
Okay, back to me, and assuming that the economy didn't contract in the June quarter, what lies ahead?
The RBNZ has forecast that negative GDP growth will have started again in the quarter we are currently in and that the economy will shrink -0.3% in the September quarter and then -0.1% in the December 2023 quarter. There would be one of those 'technical' recessions again - though a very mild one. If indeed the RBNZ was to prove at least close with its forecast then this would constitute the famed and ever-elusive 'soft landing' for our economy.
Clearly the situation is very fluid though. A major GFC-style event would change things rapidly. And its fair to say the possibilities/probabilities of some substantial global implosion continue to look very real.
But the flip side is, if we look purely domestically, our housing market is perking up again, and our inbound migration is back in full flow. Those two intertwined things could yet pump the economy up by more than has been expected in the coming months. But what that might do to inflation is another thing altogether...
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65 Comments
Already, 1 in 5 retirees are renters. That's a stat that's only going to worsen, and a retired person has less means to combat rent increases and general inflation. In short, the future will see more destitute old people.
Current model no workie.
They're pretending to run the government like a business. If the business was a loss making startup that's only designed to exist long enough for someone to buy them out.
Even some of those face issues, low savings, increasing costs to keep their property.
They can obviously sell it and try live off the proceeds, or downsize.
Fact is we have people feeling it from rising inflation and housing undersupply in many corners of society. And unlike a millennial or a gem zer, an older person running close to the wire doesn't have the same options as moving overseas, or improving their income.
But yeah, let's just keep shaking our fists at boomers and property investors. If we penalise them adequately, all will be well. Or we just find it's slightly less screwed. Or worse, via unintended consequences.
"Already, 1 in 5 retirees are renters."
There probably always has been as around one third of households historically did not own a house.
Rents rising as a percentage of income is probably the main issue for retirees. Those without savings are fkd
Councils should return to building pensioner units, or they could inventivse private investors with land rezoning.
Our local and national governments don't want to pay for this.
One thing that always strikes me as crazy, is that housing closer to the better school zones and work areas is usually owned by older people without children, and with empty rooms, and our younger people with children have to live ages away and be saddled with issues like commuting.
The answer does seem like incentivising housing for the elderly on the fringes, and intensification zoning for those inner areas they leave.
Mmm, I feel you'd want a better concerted effort than that. The taxation system can only influence behaviour, you can't rely on the outcome.
In Vietnam for instance, back in the day the government decided to raise taxes on property, based on the width, as that dictated roughly the size and affluence of the owner. The result? The property owners just built narrow tall houses, of the same or greater size.
It's not exactly the same thing obviously, but it shows the unintended consequences that well meaning tax changes has.
And in New Zealand we have an utterly broken tax system, which incentivises gambling on capital gain of land value via loose central bank policies and horrific immigration policies, while have a narrow tax base concentrated at taxing productive industries and people. The result is the economy becomes less and less productive compared to those with broader tax bases. The result is we have more and more people slipping into working poverty and less and less diverse industries, plus a small cohort with a leverageable asset base that are making out like bandits.
We also have broken infrastructure due to incessant urban sprawl and overwhelming rate rises because a lack of urban intensification.
No land value tax causes all these things too, you didn't seem to want to mention them.
Individuals and businesses get taxed as a priority, because the former are the ones that benefit from governance, and the latter are the ones tasked with generating revenue in the first place. That's not "utterly broken", that's "user pays", albeit imperfect.
Productivity declining is a common aspect of maturing economies, irrespective of how broad their tax base is - not all, but it's a very commonly observable phenomenon. That's why you get low interest rates, in an attempt to spur investment - with the consequence of asset appreciation.
But yep, the lack of unified vision and oversight of our urban centres has led to a huge amount of inefficient sprawl. An upside is it's attributed to better birth rates than more intensely populated cities, but at quite a cost.
Vote for your LVT, and if enough people agree, it'll get passed in, implemented, and then we can move onto the next assumed bogeyman that's related to the issue, but not the heart of the issue.
It is utterly broken because it is not spread evenly across the sectors of the economy. This means we have mass tax avoidance, which has led to complete imbalance in who gets taxed, the middle class and poor get taxed considerably higher than the rich and property owners, particularly because we have used a regressive consumption tax instead of a property tax like we should have. You didn't seem to want to address that in your comment.
And wrong about productivity. We always rank low down the productivity list in the OECD, because we keep taxing labour instead of property. Along with poor immigration policy it means that where we used to rank high up with European countries and Australia/the US, we now have dubious company of sharing productivity with Turkey and Eastern European countries. Its laughable to suggest otherwise, the productivity commission does plenty or reports and its widely reported throughout the media this is the case: https://www.stuff.co.nz/business/125253561/working-longer-hours-but-pro…
I will vote for LVT, but it won't matter. Because it gets unfairly characterised and rubbished by special interest groups and the anti-change brigade that it will unlikely to ever be passed.
It is utterly broken because it is not spread evenly across the sectors of the economy.
Why does everything need to be taxed at the same level to be more functional? GST is only at 15%, should it be more like 30%, to improve the system?
The bigger issue seems to be more an argument about net gain, rather than tax levels.
We always rank low down the productivity list in the OECD, because we keep taxing labour instead of property
That's not really the reason, but if you take that belief, it probably explains your position better.
What other concerted effort would you propose?
In Vietnam for instance, back in the day the government decided to raise taxes on property, based on the width, as that dictated roughly the size and affluence of the owner. The result? The property owners just built narrow tall houses, of the same or greater size.
Seems like a creative way to avoid implementing a land value tax which would have been a lot simpler and far more difficult to avoid. I am guessing they didn't have a rating system in place which made an LVT difficult to implement?
Seems like a fairly obvious outcome, similar to if the primary place of residence was excluded from a LVT, that would encourage much larger residences which would be detrimental.
All taxes have negative externalities. But a land value tax potentially has fewer downsides than many other taxes including ones we currently have. It's not a silver bullet but it's one way to shift incentives and rebalance the tax system towards more productive investment. This reminds me of the quote from Charlie Munger, "Show me the incentive, I'll show you the outcome."
Certainly a big issue where we bought. Over the past nearly 2 years of walking the dog, I've gotten a fair idea of the locals. Mainly retirees living out their days in 1/4 acre 4 bedroom old homes. Meanwhile every day I walk my daughter to school, the roads are packed with double parked cars for school drop offs.
I trust all the posters on this site are good at their job... well ... what if Orr is also the same. He has one job and is trying not to f##k it up. Im not biased one way or another but he seems to be doing a fair job.... we're not collapsing very quick nor advancing either.
Doing a good job?
- Needlessly removed LVR requirements during covid, which are a bulwark against a massive drop in property prices (now happening) which can threaten the stability of the financial system. Many of us on this site told him not to for the very reason of what is now playing out. So completely short sighted
- Pumped huge money into housing "to enable the banks to keep lending" and for various other reasons which all the banks said were unnecessary. Kept the pumping going even while inflation and interest rates had climbed hugely, resulting in banks being able to borrow money for close to 0% from the RBNZ, while loaning it out to the people at 5-7%. Huge margins, directly funneling money out of the NZ economy and all the printing would eventually lead to a lower NZD, currently playing out
- The pumping of the housing market during COVID saw prices shoot up 20-40%, entirely predictable when you make lending near free and putting even more stress on all young people in NZ to get in while it was possible. Now many of those people are underwater. All of this puts huge stress on the people and financial systems of the country
- Participating in and supporting collective central bank group think to claim "inflation is transitory", when it was clear to everyone, it was not
- Acting too late with interest rates and combined with the FLP program, forcing massive margins for the banks giving them record profits
Then, they get to mark their own report card, claim that they are doing amazing, supported by an equally inept finance minister, while the people of NZ suffer through their financial mismanagement to be worse off.
If you consider that "a fair job", I have a bridge to sell you.
Banks don't lend out central bank money, they hold it in their reserve accounts at the central bank. Banks create new money themselves when they lend.
https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/…
Agree 100%.
When the economic textbooks are updated to show what not to do during a global pandemic, the RBNZ bank will be a central part of the chapters.
Specifically, they'll refer to the idiocy of stimulating demand in the face of global supply shocks and how this sets off a massive demand driven inflationary spiral.
You say all of that with the benefit of hindsight, of course.
The RBNZ - and the world at large - did not know where the COVID pandemic was going to go.
The path we followed: vaccines were made in record time and proved very effective at preventing serious illness and death, taking load off the health system and allowing economies to cautiously re-open.
An alternative path: vaccines were not developed as quickly/cheaply or not nearly as effective. A mutation worse than Delta could have arisen, keeping the strain on hospitals and preventing economies from re-opening.
Although arguably if the alternative path had occurred, the RBNZ's actions may not have helped all that much either.
You say all of that with the benefit of hindsight, of course.
Not true, the criticism of things like dropping the LVR were made by many here as soon as they were announced.
The RBNZ - and the world at large - did not know where the COVID pandemic was going to go.
True, but they acted like they did by making long promises which boxed themselves into a corner so that they couldn't alter course without going back on their word for the changing covid situation. They are supposed to be the experts and were shown up by many interest dot co posters.
Not true, the criticism of things like dropping the LVR were made by many here as soon as they were announced.
The criticism which has been proven correct in hindsight.
They are supposed to be the experts and were shown up by many interest dot co posters.
Yes, the cheap seats who can say whatever they like and don't have to live with the consequences of being wrong, like an economy being destroyed.
The criticism which has been proven correct in hindsight.
So just proven correct then, not sure what your point is - it sounds like you've just repeated what I said.
...don't have to live with the consequences of being wrong, like an economy being destroyed.
What consequences is the RBNZ having to (or going to have to) live with?
I see plenty of consequences for people that loaded up on debt to buy a house to buy one while the RBNZ was talking about preparing for negative rates. The high house prices the RBNZ enabled are more likely to destroy the economy than the lower house prices (hence lower debt) these posters were advocating for.
Seriously?
Did the RBNZ expect supply to increase in the face covid shocks? Hell no. They actually acknowledged that supply chains would be seriously affected. And yet they stoked demand never the less?
Sorry. The only foresight that was needed was Economics 101.
Talking about hindsight is apologist nonsense.
Garbage, it was easy to see where pumping heaps of money into an already over represented, over financialised part of the economy that relies on demand (which other measures were stopping) was going to take property prices. And why, oh why, would you remove a key part of financial stability (LVRs), when you are heading into a time where you knew the financial system would be put at risk. The LVRs were there to PREVENT financial instability, its written directly on their web page where they list what the LVRs are for. Removing them at a time we needed to ensure financial stability was beyond stupid, I would say almost corrupt if it couldn't be put down to utter ineptitude.
Then you would have thought they would have learned from increasing demand, but for over a year since it became clear that inflation was NOT transitory, the RBNZ kept the FLP program going, working against their interest rate rises. Why? Cos they once said to the banks it was going to be open for a couple of years and they never want to back track on anything, showing arrogance and ineptitude, a deadly combination.
Its past time the RBNZ just came out and admitted their actions were terrible but they just needed to be seen to be doing something.
It's all pretty meh. It just looks like the spec crowd is getting ready to charge at tax free capital gains again in the anticipation of a NACT govt shortening the speculation holding window. Mass tax avoidance via leverage is not an economy.
Why do the Nats put leverage driven speculation and bank profit ahead of everyone born in NZ? Under such policy if we don't start bonding medical students and specialist training we won't have a medical system.
"It's your intention when you buy a property that matters"
https://www.ird.govt.nz/property/buying-and-selling-residential-propert…'.
Are National removing the "intent" rule as well? - NO. Sadly for some tax avoiding Property Speculators, this might not end well. Its a huge gamble to take with ones finances. Tax owed + interest + penalties = splat. As the saying goes, "just because you can, doesn't necessarily mean you should"
Every political party wants to win by bribing the public by trying to put something small in their pocket so they can get votes.
Since when we become a third world democracy where overall progress of the country doesn't matter but getting into government matters by playing petty politics of votes.
God save NZ
I live in a North Island provincial capital. I have been to a few cafes and restaurants lately. All were dead which is a worrying sign. On a positive note we got great service at all of them. Talking to retailers here they have never had it so bad sales wise. I wish there was one decent politician here that could lead us out of the current doldrums.My wife got home from Byron Bay this morning. She said food and petrol are so much cheaper over there. We are certainly getting ripped off here currently.
The cost of living crisis and co-governance have been the downfall of Labour, stoking the minimum wage and not focusing on the rising costs for food producers has been a disaster. Everything they do has been a disaster but without those two main ones I think JA would have stayed on and perhaps had another shot, it would have been touch and go as Auckland hated her lock downs and have never forgiven Labour for that. The turning point was the fact we where in lockdown and the All Blacks where playing wales in a packed cardiff stadium...... everyone had a WTF moment that day.... The Chinese had the same thing happen to them during the Soccer World Cup..... , The Nats have a big job cutting the waste, reducing the Gov over reach and restoring common sense to a tiny isolated country in the south pacific. Lets start by finding more gas fields..... its either that or burn coal going forward....
Didn't the NZ vs Wales game in the Autumn Internationals 2020 get cancelled due to Covid?
https://www.autumn-internationals.co.uk/2020/wales-v-new-zealand.html
Also, pretty sure Wales had their fair share of lockdowns too.
https://en.wikipedia.org/wiki/Timeline_of_the_COVID-19_pandemic_in_Wale…
I feel most of our measures have been pointless since about February 2020. Our interpretations of financial charts assumes a baseline of global stability.
We had one of the most sudden GDP swings in recent times. This 'normally' indicates a financial apocalypse, but the story underneath was a temporary pandemic induced shutdown.
Many companies had huge spikes in demand from lockdowns, so attracted extra investment. And why wouldn't you, if growth was that strong. And then again, underneath is the reality that eventually, people will be let back outside again.
At the moment, you could be forgiven for thinking it's a soft landing. Houses are selling, at or around asking. GDP is hanging in there.
The economy is so complex and massive it's hard to gauge fragility or resilience. But just from intermingling with various other companies, some of them aren't feeling so good about current and future sales. And some will have been operating on the assumption the crazy demand of the last few years is dependable.
Maybe, but the value of the money is less because everything's more expensive.
It's not really GDP per capita that you should be measuring, it's how much better or worse off people are getting.
Cause at the moment, it don't seem like too many people are doing much better than 'treading water'.
- "service body" utes
- VW Kombis
- unfinished 90s Japanese turbo restomods
These all seem to have 4-5 more for sale than the past few years. None of our monitored indicators go into much interpretation, it's all averages and total volumes.
Funny thing about the 70 series landcruisers is their new list price from is only around 70k, but good luck finding anything under 3 years old for under $100k.
Dual Cab from a Toyota dealer.
https://www.trademe.co.nz/4210968012//
I've definitely noticed way more "toys" for sale on FB as well. Families with kids renting out rooms is getting more popular too.
Look at the "was price" though.
Toyota NZ:
Land Cruiser 70 LT Double Cab (Requires Tray, not incl. in price)
2023 orders are now closed. Register your interest for 2024 Models at your local Toyota Store. Specification, images and price are indicative only.
Featuring 5 seats, the LT Double Cab has enough space to haul your crew and their tools wherever the work may be. Includes the standard 6.1" display audio with reversing camera.
$81,190
TDP
It is useful watching the pricing and supply in an open market like Trademe
it's hard to tell how much was added to GDP by various responses to various disasters. My guess is they were quite localised and not yet substantial.
So I'm picking somewhere between 0.2% to -0.6%. I.e. weighted towards a poor result. (GDP per capita will, of course, be negative.)
If we have positive GDP growth, and bordering on not being in a recession, low unemployment, a plateauing housing market, and inflation is still over 4%, does that mean the OCR is about neutral? Higher for longer?The RBNZ is certainly not going to starting dropping the OCR with no recession.
"Inbound migration is back in full flow" Is it though? NZ customs publish monthly arrival and departure statistics for all NZ airports. Yes 2022 was a big year for arrivals 101k net more arrivals than departures. 132k gain net in Q4 alone. But 2023 is a different story Jan to Aug net loss of 2k. Any GDP impact of the 2022 new arrivals setting up their life in NZ is gone now. The GDP impact of established residents relocating their lives and spending power to Australia is yet to be felt.
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