Shallow recession remains likely, says economist
New Zealand Gross Domestic Product fell over the December 2022 quarter compared to the September 2022 quarter; Statistics New Zealand has announced.
An official measure of economic activity, GDP provides a snapshot of the value added to the economy over a quarterly or annual period.
In an announcement on Thursday morning, Statistics New Zealand confirmed that GDP fell 0.6%, from 1.7% in the three months to September. On an annual basis, GDP grew by 2.4%.
It marks a slightly larger fall than the March 2022 quarter when GDP fell by 0.5% and follows growth of 1.6% and 1.7% over the June and September 2022 quarters.
Statistics New Zealand senior manager for industry and production Ruvani Ratnayake (pictured above left) said compared to the September quarter, activity in nine out of 16 industries decreased, and that manufacturing the biggest driver of quarterly decline.
“A fall in transport equipment, machinery, and equipment manufacturing corresponded to lower investment in plant, machinery, and equipment; while reduced output in food, beverage, and tobacco manufacturing was reflected in a drop in dairy and meat exports,” Ratnayake said.
An official measure of economic activity, GDP provides a snapshot of the value added to the economy over a quarterly or annual period.
Business services were up 3.3%, driven by rises in advertising and market research and computer system design. Household spending was flat, decreased spending on durables offset by an increase in services spending. Investment was down 1.9% and government spending was down 2.4%.
Ahead of the official GDP figures, ANZ senior economist Miles Workman said in a Q4 2022 Preview that the bank had pencilled in a 0.3% contraction for the December quarter, in line with Kiwibank’s forecast, also 0.3%.
Speaking to NZ Adviser about the 0.6% fall, Kiwibank senior economist Mary Jo Vergara (pictured above right) said although a contraction was expected over the December quarter, growth was “especially weak”.
“Given we had such strong growth over the previous two quarters, it is still largely a story of payback – that type of growth is unsustainable,” Vergara said.
Vergara noted that household spending was flat over the quarter, with a contraction in spending on durable goods (and a slight lift in non-durable goods).
As the December quarter is typically the peak for international tourism, retail trade was expected to stronger, she said, noting that tourism-linked industries had underperformed over the quarter.
Construction is showing resilience, but investment in construction and residential building is starting to slow, she said. But while growth has slowed, Vergara said that doesn’t mean inflationary pressures are starting to ease. GDP data is backward looking, and all other indicators show that inflation remains elevated, with the clean up and rebuild of Cyclone Gabrielle posing some upwards pressure, she said.
Looking ahead, Vergara said household spending is expected to continue to be subdued.
As a direct result of RBNZ’s actions to slow economic demand, Kiwibank’s base case scenario is for a “shallow recession” through the second half of this year, she said.
December quarter GDP does not capture the severe weather events of January and February 2023, namely the Auckland Anniversary weekend floods and Cyclone Gabrielle.
“The cyclone clean up and rebuild does pose some upside risk to it…it could mean that the starting point of the recession is pushed out, or that the magnitude of the contraction is softer than what we expect,” Vergara said.
