Statistics NZ’s gross domestic product data was a win for the Reserve Bank’s forecasting team which picked the quarterly change exactly right.
The economy grew 0.2% during the first three months of the year, and flipped the symbol in front of the annual number from minus to a plus — also at 0.2% year-on-year.
While this can be framed as New Zealand exiting recession and returning to growth, it would be better described as the economy flatlining as the central bank suppresses demand.
If the Reserve Bank’s future forecasts play out, the next quarter will also see near-zero growth and the annual number will switch back to negative.
High frequency data actually suggests the June quarter, which ends next week, will record a contraction. BNZ’s economists lowered their forecast to -0.2% after Thursday’s release.
“Overall, we see today’s data as showing the economy continuing to bounce along the bottom,” they wrote in a note.
It is not until the September quarter that gross domestic product (GDP) really begins to grow again, slowly approaching the long-run average of 2.6% at some point in late 2025.
Long story short: the Reserve Bank has shrunk the real economy by about 0.6% from its peak in September 2022 and won’t let it return to that level until the end of this year.
Receding still
New Zealand’s economy is at the bottom of a wide U-shape GDP recession. While it may have passed the lowest point, the slope ahead is still shallow and treacherous.
Debates about whether households are experiencing something they would call a recession shouldn’t be decided by a few decimal points in a quarterly GDP release.
The unemployment rate is currently 4.3% and is forecast to rise above 5% in the next year, but rising joblessness already triggered an NZ version of the Sahm Rule back in September 2023.
Miles Workman, a senior economist at ANZ, said the data showed the economy was still “anaemic” from a domestic demand and per capita perspective.
Economic activity per person has fallen 4.3% in total, making it worse than during the 4.2% decline during the Global Financial Crisis.
“While GDP growth is expected to start gradually recovering later this year, most households won’t feel it, given the domestic slowdown still has further to run and the labour market is loosening,” he said.
There yet?
This disgusting medicine is just what the doctor ordered. Core inflation was still hot at 4.3% in March and the Reserve Bank wants an ice-cold economy to cool it down.
In a speech, Reserve Bank chief economist Paul Conway said spare economic capacity would emerge over the year and feed through to lower domestically generated inflation fairly quickly.
The Reserve Bank’s forecasts showed the output gap, the difference between actual and potential economic activity, would turn negative for the first time during the March quarter.
This gap was forecast to be -0.3% of GDP in March and growing to -1.6% over the next four quarters. This would be what might be described as a “cool” rather than “hot” economy.
Cooler conditions will help to spread disinflation into the sectors which have been slower to respond to interest rates, such as the services sector.
Services only declined 0.1% during March and was up 1% on an annual basis. That said, wholesale trade can be a bellwether and it has declined 3.6% over the past year.
Reserve Bank policymakers will want to maintain the economic conditions seen in the March quarter until they can be completely sure inflation is dead and buried.
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Yep. Anyone else get the feeling that the time lag in the information these guys get is going to smack them in the face? Everyone I know is losing co-workers…. Or having hours scaled back. I’ve got no idea where this pent up demand out the other side is supposed to come from post RBNZ rate lowering if the export sectors are still broke (China is still struggling), service businesses have shut up shop and the only jobs left involve patching potholes ….and spending the depleting government coin….
Reading some political and economic history I’m seeing WAY too many parallels between earlier eras when things stayed crap for a decade 😳😳
Vultures.
it’s not just poor performing businesses who are getting weeded out.
Think builders, sub-trades, retailers, entrepreneurs, etc. many small businesses across a variety of industries will be forced to make some difficult decisions. Lots won’t make it and the carnage will really kick in q3
The poms have gone from 11 percent to 2 percent since rishi took over. They would be dropping their OCR were it not for the election. No talk of technical terms like non-tradeable inflation which in our case is being propped up by local govts robbing the public blind. In turn the rbnz keeps rates HFL, a stupid system
The RBNZ dont control the economy....the banks decide whether or not to create credit...and the Government determine what policies they will promote that encourage or discourage that lending.
The RBNZ (only) control short term NZ interest rates....in a global capital market with almost no control on capital movement.
Let's also not forget the LSAP debacle
https://croakingcassandra.com/2023/04/15/understanding-lsap-losses/
But you could look to LG rates as a proxy for the wave of deferred maintenance and investment right across the country. So when the councils are all fighting for material and labour at the same time in their renewal projects, and then the general voters are fed up enough with declining public services and demand from a government that the roads/public health system/schooling/policing all get fixed at the same time.......
So, we still have low levels of unemployment historically speaking, but our working people are collectively producing 4.3% less than last year.
Clearly there is a big drop in aggregate demand due to disposable incomes not keeping up with inflation and the productivity gap is no longer being filled with cheap debt as in the previous decade.
The only success stories of the 4-day workweek have been at high-value companies where work output/outcome is skill or capital-driven.
Think how furious young parents will be when they get an email from their kid's daycare that they'll be taking them in for 25% less time while charging the same!
The only success stories of the 4-day workweek have been at high-value companies where work output/outcome is skill or capital-driven.
Or somewhere with an over abundance of pointless meetings and general busywork to fill a day.
If the outcome is more skill driven then the hours the skill is deployed should have a fairly close relationship to revenue.
Sounds like it works in some insurance and finance firms, but that's the capital side of things.
Got this backwards? Most parents would love an extra day with the kids a week instead of jamming all their activities and fun time into 2 days, it goes into 3. Nothing wrong with that. But requires the parents to have a 4 day week too. Education would probably adapt.
There's some big divergences between sectors. For example, real growth vs Q1 last year:
- Public administration and safety +4.6%
- Education and training +4.1%
- Health care and social assistance +2.9%
Compare that to the real economy barometers:
- Manufacturing -4.9%
- Construction -3.4%
- Wholesale trade -4.7%
- Retail trade and accommodation -1.8%
Still plenty of pain out there despite the headline growth.
RBNZ created the problem by money printing and low interest rates. They now use inflation as an excuse to create a recession,crash the housing market and economy. Lock step in time with other central banks. In the UK inflation now at 2% but still the BOE keep rates high.
Mike Hosking was saying just the other morning,"there is no housing market crash"...things are slow,but no crash.He also mentioned this morning we should all be out buying merino jumpers to support the wool industry and also mentioned that as the weather was dry today,he drove his "intermediate level" car to work...sheesh,talk about out of touch,yet he has the highest rating breakfast show and folk hang off every word he says.
I think many listeners are habitual. Wake up, switch the radio or tv on and listen to <insert voice> in the morning for no apparent reason, as many also did for the evening news.
Folk hang off every word he says
Yeah, this one is mind-boggling. Nothing that man says is relevant on any level.
He is, by his own words, an idiot - https://www.stuff.co.nz/entertainment/tv-radio/102974035/mike-hosking-c…
NZs problem is that the country's economy is unbalanced.
Too dependent on the Service Sector Industries which make up 73% of the economy and too fewer Goods making Industries which make up the rest, 23%. That is construction, agriculture, farming , Manufacturing ect...
That is because:
1. We decided we liked to buy much cheaper goods using cheap labour in Asia - so stopped manufacturing locally.
2. This meant that we had lower CPI read out (deflationary forces imported via cheap foreign labour)
3. This allow the RBNZ to continue to drop interest rates and pump house prices higher and higher which was voiced as a sign of success by the already rich and those who would benefit politically.
4. This means that our housing market (some say ponzi) is reliant upon the import of cheap foreign goods as opposed to domestically manufactured goods. If this ever changes (think war/trade war) and we have to start manufacturing locally again - we are going to be in a world of pain as wage demands for local manufacturing will mean that goods will be extremely expensive (as workers need to get paid enough to pay local rents/mortgages which are very expensive - this could see inflation surge even higher for decades ahead of us).
Its an extremely daft strategy which will backfire upon us (which I've been warning about on here for quite a long time now).
This was also a feature back in the day as more sources of silver were discovered/mined.
The end result becomes the same, as a society gets wealthy, it falls into luxury, production relocates, and the wealth then consolidates to the holders of capital.
Having such free and open global trade just exacerbates the problem.
Agree with all 4 points however I partially disagree with 4 and the last statement that it will all 'backfire' in our face.
The fact we have a simple export (high value ag) led economy with simple inputs means we can potentially use our (pretty good) international diplomatic ties to easily find new markets to sell too. Plus the 2 or 3 key inputs can be sourced from multiple other places. People always need food, there's always a mouth to fill.
If we had kept down the manufacturing road with a far more complex supply chain we would potentially be in a worse position i.e. Germany.
I think the NZ export economy is in a good place, just need to rip the band aid off with China.
(My take away from Zeihan on RNZ 30 the other day).
Humans are nomadic and use resources up then move on to the next best option. The cheap good strategy is simply this, we found a cheap resource, used it, and now we rely on it sadly, even though we know that it isn't sustainable. We've doubled the available labour force giving women opportunity, then moved on to extracting cheap labour overseas. We will soon enough realise that extracting wealth and resources from other countries will eventually lead to a push back locally or abroad, and the system that we hold dear won't hold up as it relies on extracting resources from countries. The British empire was built on coal, slavery, and extracting resources like mahogany, teak, tea, gemstones from less developed countries. At some point there won't be any countries left to exploit and the 1st world won't have it's leverage any longer to maintain it's standard of living.
My flight from Singapore was well under capacity. We both got a row of three seats and there were still more available.
As an aside, when we queued to board we wondered if were at the correct gate. Full of families and some very old people - that wonderful cultural diversity thing we are embracing reflected so nicely. We were a cultural oddity.
I felt a bit sad. But I guess I can't admit to that these days?
I'm not enjoying the stagflation the Reserve Bank created, An economy winding down due to high interest rates and prices going up at the same time, (because of over extended money printing by the RB and overspending by the labour govt) - ouch. As a country we need to learn from our mistakes and get back to winning
Just a reminder that the countries that squished inflation stopped it at source by using bloody obvious tools to temporarily shield the economy from imported price shocks. They didn't use tools designed to have an impact (recession / wage suppression) 12 - 18 months later... by which time those imported price shocks had worked their way through into other domestic prices (diesel to food costs, living costs to wages, wages to rents, interest rates to local govt rates etc). Check out Denmark or Switzerland, or even Spain and France. You tackle imported price shocks like a virus - you prevent contagion.
The problem we have here is that we have a bunch of ideological, brain-washed geniuses in charge of critical parts of our economy. Yes, they're smart and convincing! Very good at math. In fact they should have been engineers and done something useful. BUT, the models, methods and practice they have learned is more theology than science. Instead of looking at the economy as a real, complex system that is prone to instability, irrational decisions, and multiple interacting feedback loops, they conjure up a completely fantastical world of rational decision-making, homogeneous households, loanable funds, diminishing marginal returns, mythical inflation expectations etc.
Then they put the cherry on top of this nonsense cake - monetary policy. The answer to price stability! The one lever to rule them all. Wiggle it very seriously this way to speed things up, wiggle it very seriously this way to slow things down. Like trying to land a helicopter with a single pedal. Who cares if it works as long as we can always pull the lever and create spare workers so that firms don't have to pay people properly. Job done.
If economists had trained as engineers they would have asked what is actually driving prices . Then they would have seen that the answer was more complex than a supply / demand graph, and that what really matters is the cost of inputs (wages, energy, materials), the amount of surplus taken by business owners, market power, and the costs of any money skimmed off by the banks. Now what happens when you make some reasonable assumptions and create a simple model based on this kind of common sense? It would look something like this, which my old workmate knocked up in about 30 minutes. Now, look at what is holding inflation up 'higher for longer' when you use an input / output model like this (the blue at the end of the graph).
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