New Zealand’s economy expanded 0.2% in the first three months of 2024, resulting in the slowest annual growth since March 2021 when the country was still emerging from pandemic restrictions.
Statistics NZ data showed economic activity, as measured by Gross Domestic Product, has essentially flatlined over the past 12 months. Annual growth was also 0.2%, with quarterly movements more-or-less cancelling each other out.
Goods-producing industries faced a difficult quarter with production down 1.3% in the three-month period and 2% over the past year. Construction was hardest hit with a 3.1% decline in the quarter.
The services sectors, which makes up 73% of the entire economy, collectively shrunk 0.1% during the quarter but grew 1% during the year.
Primary industries helped to bolster the overall GDP result with 0.2% quarterly growth and 1.3% annual growth.
BNZ senior economist Doug Steel said milk production had been stronger during the quarter and there had been a record kiwifruit harvest to boost horticulture.
Slow & steady
The economy has shrunk in four of the past six quarters, while GDP per capita has steadily declined and was down 2.4% in the year ended March 2024. This is not quite the longest decline, as the per capita measure declined for seven consecutive quarters in the years after the Global Financial Crisis.
Most economists expected a roughly flat quarterly result, either up or down 0.2%, but the Reserve Bank of New Zealand (RBNZ) picked the 0.2% increase in its most recent forecasts.
BNZ's Steel said anything “near zero” annual growth suggested the economy was operating below its potential output and “clearly contracting” on a per person basis.
Michael Gordon, a senior economist at Westpac NZ, said the economy was likely "only just moving into cool territory" after being very overheated in previous years. Annual economic growth reached 6% in the aftermath of the pandemic and has been intentionally slowed by the RBNZ.
New Zealand’s real gross national disposable income per capita rose 0.4% in the quarter but has declined 3.5% over the past year.
This measures New Zealanders' purchasing power or ability to buy goods and services. The nominal size of the economy was $410 billion, or up 1.6% during the March quarter.
99 Comments
I would like a ocr drop.
I suspect not this year as I suspect the majority would react by spending more and hiking salaries and house prices (as most would be expecting us to head back to a boom environment and have fomo).
I would thus expect them to wait, maybe tease a decrease butonly if inflation and related KPIs remain within limits ( to prevent inflation eturning).
Expect a very slow journey with small rate cuts.. starting maybe q2 2025. But again I would like one in 2024.
Rate cuts don’t equal immediate spending spree’s.
If its done too early a lot of individuals and businesses that are cashed up will assume the OCR will only drop from there, thus house prices will only rise, spend will only increase and staff will only leave from that point.. and will react accordingly. Znyone who had put off buying a house will want to get in fast and businesses will want to retain key staff and snap up any remaining skilled staff that ae available (remember the pool of skilled staff is much smaller due to the exodus to Aus.. we cant handle green shoots without driving up wages)
The other factor is that RBNZ will. not want to be seen to see saw, the markets need confidence. so if they see any risk of inflation returning once they start to drop the OCR, they wont do it.
I reckon we would need another 6 to 9 months to really change habits and expectations and then as you say a long drawn out reduction in the ocr probably stopping way higher this time
TTP,
You never disappoint. The housing market is still falling, so cannot be the source of output growth. On the only metric worth quoting, output fell again in a per capita basis.. Since the figures are well out of date, I am pretty sure that the next quarterly figures will show a contraction in nominal terms as well. We are in a recession.
It was another commenter (maybe solardb) who asked quite aptly on the breakfast post "what is the world going to do with perhaps millions of people who can't survive with the increasingly oppressive heat"
The answer is right here ... import them to NZ to juice the GDP figures. No rest until there's a vape shop and liquor outlet on every corner.
Even if not looking to buy a home there, they will still be far more able to save a wad of cash there in comparison to NZ. After they have sufficient stacks in the bank, the world is likely to be more of an oyster than it would have been sitting here for the same time, with far less savings.
+0.2% was the increase in nominal total GDP.
-3.5% is the decrease in the real inflation adjusted gross national disposable income/population (i.e. on a per capita basis income is down)
National Disposable Income is the sum of the disposable incomes of all resident institutional units. Gross National Disposable Income measures the income available to the nation for final consumption and gross saving.
Really surprised by that result tbh - licking my wounds even! Looks like RBNZ have used a deflator of 3.7% (less than CPI), which messed up my forecasting but I got a few other things wrong too.
Worth noting that the 'industries' that are pulling us into the positive are basically central Govt, energy suppliers, finance and insurance, healthcare, and, bizarrely, non-residential rental. Unsurprisingly, the prices holding our CPI up are also mainly in these areas.
UPDATE: Catching up with friends who are in the detail of the data and by far and away the biggest industry contributor to the quarterly growth appears to be... 'unallocated'. Look at this. GDP went up by around $50m (2010 prices) and the biggest positive contributor was the 'unallocated' category, which apparently generated $176m.
Worth noting that the 'industries' that are pulling us into the positive are basically central Govt, energy suppliers, finance and insurance, healthcare, and, bizarrely, non-residential rental
While global CRE stares into the abyss, commercial property owners in Raglan are jacking up the rents.
Apologies, No doubt this topic has been covered on threads before but what am I missing when people are calling for lower interest rates.. let's hypothesise
What happens if we have to start cutting way before or substantially harder than the fed?
Understand there's a lot of moving parts but in my simplistic view.. cutting rates would devalue our dollar and push imported inflation up, particularly in fuel which obviously has reproductions throughout the whole economy. I know they've built a war chest for this event but looking at what's happened with the yen it seems to be extremely temporary. In early May it was 160 to the usd.. $60billion later 153 and swiftly back to 157/158. If this played out surely we'd risk a 70/80s scenario with rates yo-yoing higher again.. Are cutting rates viable or could it potentially make things worse than just grinding it out?
Thanks in advance
Fair question.
If we cut rates ahead of the FED the dollar could be expected to move lower in relation to the USD, but it is by no means certain....when you look at the NZD/USD rate over time there appears little logic in many of the movements....sentiment is difficult to understand and by no means consistent.
Frank - If cutting rates lowers the NZ$ then we import less because increased unemployment means less discretionery disposable income to spend on Petrol, Coffee etc but keeping mortgage rates higher for longer means more defaults lower assets price and a blow to confidence, take your pick mine is lower interest rates.
Cutting rates before the US may (or may not) lower the cross rate...and it may be small and/or short lived...so determining what effect it may have could really only be determined in retrospect.
My inclination is that a lowering would have little or no impact on inflation for a number of reasons , and I also fully expect the FED to cut later this year in any case....but sadly I dont think the RBNZ wish to admit their minimal control such a move would suggest.
I'm definitely no expert here, but here we go.
They way I see it is more related to inflation, if cutting rates has a negative impact of inflation, then BAD.
Inflation reduces the value of our dollar, we need to maintain a relatively stable exchange rate with the US and our trade partners.
Inflation falls before US = higher value NZD and potentially less exports, possibly deflation.
Inflation falls after US = lower value NZD, and cost to import increases, more inflation.
Exchange rates are set by the interaction between forecast interest rates and forecast inflation.
Cutting earlier than the FED if forecast inflation is better than in the US won't hurt us via dollar devaluing too much. Rather, not cutting in that scenario would lead the dollar higher.
Cutting because the economy is weak while inflation is still rampant however, is a different story.
I think the next reading for April to June will show that the economy has dipped again or low growth at best. The first few months had a good spending boost from a great summer, high levels of tourism, new Government coming in optimism. Conditions have changed since and these higher costs of living and interest rates are really starting to hit many.
Probably not the news some may have been hoping for (doom and gloom in GDP figures) to justify interest rate drops to save the value of their investment property portfolios.
I personally don’t think this result is justification for the RBNZ to start dropping rates - to me this will be justification for them to continue to hold the OCR where it is.
There is nothing to celebrate here at all.
Basically no growth for more than a year.
Meanwhile, over that same period of time, capital expenditure has been minimal while existing productive stuff has another year of wear and tear.
So we continue to go backwards.
And on a per capita basis ... we're poorer!
The header of the article doesn't make sense: Kiwifruit harvest and packaging starts halfway through March so a full impact would be on Q2 GDP; not Q1. That BNZ economist doesn't know where he is talking about.
Regarding the electricity generation. Production was up about 2.3% and spot market pricing about 5.6% compared with Q1 2023 so it could have helped to push GDP into possitive territory.
Imports for Q1 2024 were 3.21 billion lower but exports were up by 0.68 billion compared with Q1 2023. Net effect would be negative for the NZ economy, less imports to sell to each other or to manufacture something, but I am not sure how the Stats NZ further cook the data to create an impact. Also Q1's are when we have the most foreign visitors.
All'n all I believe they are right with a 0.2% increase but like others have already mentioned per capita it is a decrease.
Great comment. I would love to know what taxes and other bits and bobs are included in the 'unallocated' bit of the GDP. The whole economy increased by around $50m (2010 prices) in the last quarter. But the contribution from unallocated items was a whopping $176M (offsetting the collapsing construction and professional consultancy sectors).
Also worth noting that it looks like $20m of the increase was imputed rents - the amount that home owners would pay to rent their own house. This has increased sharply because rents have increased by more than inflation.
Spoke to a friend who went to Mystery Creek fieldays last week. He makes trailers, wood splitters and farm equipment, unfortunately he took it all back with him.
Enquiries but no sales.
It's a great time to pick up a bargain, from housing, campers, and jetski's etc.
ha ha. I tried it...here's the final para of the 200 -
In conclusion, the label of stagflation does not accurately capture New Zealand's current economic dynamics. The situation, driven by unique global influences and counterbalanced by targeted domestic policies, reflects a transitional phase rather than the entrenched stagnation characteristic of stagflation.
The most common narrative is this is a sign of weakness in the USD and a move away from it, to the strength of BRICs.
But another is that the US doesn't need Saudi oil anymore, and doesn't even have an aircraft carrier on station near Saudi anymore. So the Saudis need to make new friends, as they can't really defend themselves.
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