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It's official - latest GDP result confirms New Zealand is in recession

Liam Dann,
Publish Date
Thu, 21 Mar 2024, 10:52AM

It's official - latest GDP result confirms New Zealand is in recession

Liam Dann,
Publish Date
Thu, 21 Mar 2024, 10:52AM

New Zealand has entered recession. Gross domestic product (GDP) fell 0.1 per cent in the December 2023 quarter, compared with the September quarter (which also shrank). 

Economists traditionally define a recession as two successive quarters in which the economy contracts. 

The economy shrank despite record migration levels and population growth. GDP per capita fell 0.7 per cent in the last three months of the year, Stats NZ said today. 

And real gross national disposable income fell 1.4 per cent. 

Wholesale interest rates and the New Zealand dollar fell in response to the news. 

ANZ markets strategist David Croy said the local market was largely on hold after a “dovish” message from the US Federal Reserve early in the session. 

When the local data was released, markets responded to both. 

The two-year swap rate, which can have an influence on mortgage rates, fell by 13 basis points to 4.75 per cent while 10-year bond yields dropped by 10 basis points to 4.42 per cent. 

The Kiwi rallied by 40 pips, after news from Fed, then gave up 20 after the GDP release to trade at US60.7c. 

“The market has declined because, essentially, the data is seen as being quite a significant factor in terms of the Reserve Bank’s deliberations,” Croy said. 

The Reserve Bank’s forecasts show the bank expects to keep its official cash rate high at the current level of 5.5 per cent throughout this year and well into next. 

Market pricing, however, has the bank cutting its rate in the second half of this year. 

But the GDP data was slightly softer than the RBNZ expected - it had pencilled in a 0.0 per cent rise for the quarter. 

Manufacturing, wholesale trade, retail trade and accommodation, and the transport, postal, and warehousing sectors all took a hammering in the quarter, according to Stats NZ data. 

Wholesale trade was the largest downward driver, with falls in grocery and liquor wholesaling leading the plunge. 

Suspicions of widespread trouble in the retail sector were confirmed, with falls in furniture, electrical, and hardware retailing. 

Stats NZ national accounts industry and production senior manager Ruvani Ratnayake said increased activity associated with the New Zealand general election contributed to growth in the public administration, safety, and defence sectors. 

GDP rose 0.6 per cent over the year ended December 2023. That was largely thanks to a relatively strong June quarter, when the economy grew by 0.5 per cent. 

It was the fourth quarter in the last five where the economy has contracted, ASB economist Nathaniel Keall said. 

“Since the economy peaked in September 2022, output has shrunk by a cumulative 0.7 per cent or so. As we’ve consistently emphasised, this slowdown has taken place at a time when population growth into New Zealand continues to prove exceptionally strong by historical standards. 

“Headline GDP growth – as unimpressive as it is – actually flatters the picture and masks the underlying weakness.” 

On a per capita basis, the economy had shrunk almost 4 per cent since then, Keall said. 

“Compared with its level prior to the pandemic, per Capita GDP appears to have barely grown at all,” he said. 

“High population growth is also eating into national income, with a -1.4 per cent [quarter on quarter] fall in gross national disposable income ballooning into a 2 per cent fall on a per capita basis.” 

As for whether New Zealand is still in the economic quagmire, GDP data for the current January to March quarter will likely not be released for another three months. 

Shortly after the data release confirmed the recession, former Prime Minister and current Labour leader Chris Hipkins rejected suggestions he was to blame. 

“Well no, that’s on the current Government, they are in charge now,” Hipkins told Newstalk ZB. 

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. 

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