New Zealand may be heading into recession after Stats NZ revealed that national GDP had fallen into the red during the December quarter.
It comes a few months after the governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, admitted it was engineering a recession to combat inflation.
“What we are looking at is a one percent of GDP slow down over the period of three to four quarters in the second half of next year into 2024,” he said.
However, the economy already contracted 0.6 percent during the last quarter of 2022, significantly worse than the RBNZ’s forecast of 0.7 percent growth.
Stats NZ said the performance of the manufacturing sector was the biggest driver of the decrease, down 1.9 percent.
Additionally, the period, usually bolstered by the beginning of its peak tourist season, continued to see a lower number of overseas visitors compared to pre-COVID levels.
“Other drivers of the 0.8 percent decrease in expenditure on GDP were investment, down 1.9 percent, and government spending, down 2.4 percent,” Stats NZ said.
Stats NZ also made a downward revision to GDP growth in the September quarter, dropping the original 2 percent growth figure to 1.7 percent.
Overall, the New Zealand economy grew 2.4 percent in 2022.
Federal Minister Still Positive
Despite the contraction, Finance Minister Grant Robertson said the economy continued to display its “resilience.”
“While GDP is likely to move around a bit as we continue to recover from COVID, our economy is 6.7 percent bigger than before the start of the pandemic, ahead of most countries we compare ourselves with,” he said.
“This result shows the strength of the economy in this challenging environment.
“We are well-positioned to support New Zealanders dealing with cost of living and the impact of flooding and cyclones with near record low unemployment, rising tourist numbers and the government’s books in solid shape.”
Robertson noted that the Treasury and Reserve Bank had previously forecasted a period of “shallow recession.”
“In the face of this we will continue to focus on supporting New Zealanders with cost-of-living pressures while carefully and responsibly managing the government’s finances,” he said.
However, the opposition National’s finance spokesperson Nicola Willis said the outlook for the country’s economy looked “increasingly worrying.”
“A stalling economy is yet more bad news for New Zealanders already battling sky-high inflation and rapidly rising interest rates,” she said.
“Workers are already suffering from badly stretched after-tax incomes and a weakening economy means things will get worse.”
Recession Conditions Already Present
ASB Bank economist Nathaniel Keall noted that the current conditions in retail trade, accommodation, and manufacturing indicated these sectors may already be in recession.
“NZ manufacturing output has now fallen for four consecutive quarters, often by quite chunky margins,” he added.
Keall said the recent Cyclone Gabrielle event will also have a restraining impact on GDP growth in the first quarter of 2023.
At the same time, the subsequent rebuild is likely to drive activity and spending in construction and infrastructure.
“Nonetheless, it’s evident substantial headwinds are building for the NZ economy over the medium term,” he said, referring to persistently high inflation, cost of living challenges, higher debt servicing costs, and low consumer confidence.
“All up, the NZ economy has proven very resilient thus far, but a recession in 2023 is a distinct possibility.”
Meanwhile, ANZ senior economist Miles Workman said the latest GDP figure “overstates” the pace of the economy’s slowdown.
“Even if GDP surprises on the downside again in Q1 [March quarter], to the point that the economy officially reaches “technical recession” status, that still doesn’t change the fact that capacity constraints are extreme, and economic resource, particularly labour, is hard to get right now,” he said.
The current accounts deficit for New Zealand during the December quarter was also revealed to have widened to the largest deficit since records began, up $1.9 billion to $33.7 billion (US$22.6 billion), or 8.9 percent of GDP.
Workman remarked that New Zealand needed to “stop living so far beyond its means or risk facing a sharp adjustment.”