Economic activity slowed by more than half a percent in the last three months of 2022, led by declines in manufacturing, retail, and hospitality.
Data related by Statistics NZ shows gross domestic product fell 0.6% in the December quarter, bringing annual growth in the economy to 2.4%. The decline followed an unexpectedly strong increase of 1.7% in the September quarter.
The drop in economic activity was worse than predicted by most bank economists and dramatically lower than the 0.7% increase forecast by the Reserve Bank.
It is possible the December decline could be the beginning of a technical recession, which is defined as two consecutive quarters of shrinking activity.
However, ANZ bank economists said earlier this week that a weak GDP was “payback” from the “whopper pace of growth” in the September quarter.
Statistics NZ senior manager Ruvani Ratnayake said nine of the 16 industries experienced a decrease in activity compared with the September quarter.
The manufacturing sector was the biggest contributor to the slowdown — with a 1.9% decline — but arts and recreation had the largest drop down 4.2%.
Fewer investments in equipment and machinery led to the drop in manufacturing, while reduced outputs in food and beverage meant a drop in dairy and meat exports — primary industries fell 1.3%.
Activity also declined in industries related to tourism, such as accommodation, retail and transport, which would normally be higher during the warmer months bolstered by tourism.
The number of overseas visitors during the quarter was still below pre-Covid levels, despite travel restrictions being lifted in August 2022.
Business services, which makes up approximately one tenth of the economy, grew 3.3% and helped to offset falls in other parts of the economy. This was driven by increases in advertising, market research, and computer system design.
GDP per capita fell 0.9% and real gross national disposable income, which measures the countries purchasing power, dropped 1.7%.
111 Comments
Here we go.
Just in time for the election for voters to wake up to the wrongs of Labour over the last few years.
The sugar highs from the printed money is now over.
I'm worried about people's debt. When I go out and see how many people are still shopping up a storm (wants not must haves) I do wonder how they afford all these things.
Yes and No. Interest rates are lifted in order to stop inflation ie people have higher mortgage payments, less disposable income to spend on goods which reduces demand for goods and consequently prices are reduced to stimulate demand and inflation falls.
The biggest risk with Monetary Policy is overcooking your interest rate rises and you get a big fall in demand , people dont gradually stop spending - they rapidly stop spending , demand falls away suddenly and you get a recession.
Most monetary policy is done slowly- ie tweaks to interest rates over 1-2 years - disposable income slowly reduces, people gradually adjust their spending and businesses respond accordingly and this is called a soft landing for the economy.
Then you get what we have - the reserve bank has had to do big lifts in interest rates in consecutive months (mainly because of the high number of fixed loans- its taken well over 18 months for the impact of interest rates to affect most mortgages). The impact of those interest rates are suddenly hitting mortgages as big lumps - we are hearing as people refix increases of $800 -$1000 a month - which is ALOT to come out of disposable income. People have rapidly stopped spending, demand has fallen away and now we have a recession. Which is known as a hard landing.
What actually we now have is more than a hard landing we may have stagflation : Stagflation is an economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.
Unemployment is still low- but we definitely have no growth and inflation will continue as a result of the cyclone and weather events affecting supply of goods (fruit/ vege) and increasing demand for certain items such as household goods/ furniture, building materials etc. The key will be for the RBNZ and the government to stop unemployment rising too far.
For those who want a simple explanation of stagflation.
https://www.investopedia.com/terms/s/stagflation.asp
Most monetary policy is done slowly- ie tweaks to interest rates over 1-2 years - disposable income slowly reduces, people gradually adjust their spending and businesses respond accordingly and this is called a soft landing for the economy.
The reserve bank has been raising interest rates for almost 1.5 years now and are predicting rates to top out around the 2 year mark. Would you say that they've been raising at the correct rate?
No - general Monetary policy in the last 30 years (2007-08 been the most recent area of evidence) would be to raise in 0.25 increments - every 2-4 months so raise then wait a cycle and then rise again - thats slow monetary policy to stop overheating the economy
in this case they started that way with a couple of 0.25%, quickly went to 0.5% and then in Nov we got a big .75% - those are big rises and there ahve been consecutive rises.
the biggest issue however is NZ's obsession with fixed interest rates. Australia has reached a similar economic point to us - with lower rises (highest rise so far is .50% and they are now using .25% increments) , starting later- they now have only been raising rates 11 months. The big difference Australia uses variable rates- so the mortgage impact hits immediately - its not delayed until the fixed term expire and people get used to their disposable income going down overtime. So they cut their spending overtime, rather than all at once, which is what's occuring here in NZ when Average Joe's fixed term expires and he needs to come up with an extra $800 a month from next month
Australians have taken advantage of low fixed rates, and instead of the usual 90% being on variable rates, this is now down to 60%, so they are less sensitive than they used to be. However, the real reason why the RBA hasnt gone as hard or fast as the RBNZ is that Australia does not have wage inflation. They don't have a Govt handing out 24% pay rises to public sector workers, or 7% increases to minimum wage workers (bringing the increase in minimum wage under the Labour Govt to 44%), nor increasing welfare payments to the level where its now more financially advantageous to not work, which is why the number of people on JobSeeker has increased almost 30% under Labour.
Another reason why wages have been kept down in Australia is because they have a high level of immigration, with over 400,000 new workers arriving in the last year (plus all the international students who were given uncapped work rights). As should be apparent by now, hardly anyone wants to immigrate to NZ any more, and for the few that still do the Govt seems unable to process them in a timely manner, so we remain short of everything from bus drivers to nurses.
When you raise the minimum wage by 44% you wipe out a lot of people's wage premium they get for their skills and experience, so that 44% wage rise flows through to everyone else who demands to be compensated above minimum wage level. The minimum wage was always designed to be a starting wage that encouraged employers to take on someone young and inexperienced, to give them a chance, and hopefully turn them into decent employees at which point they got pay rises. Labour doesnt seem to understand this and thinks its like being on one of their benefits for life (another area where they confuse temporary with, not just permanent, but intergenerational dependency)
Spot on.
Reserve banks spent years printing money and holding OCR too low in order to keep the party going, missed the start of the inflation/downward cycle, pumped asset prices and created a massive rich-poor divide - all with no plan or regard for what would happen when they ran out of tools to control events (we will all find out now).
Recessions, bank failures, some massive corporate bankruptcies, country financial collapses, increasing unemployment, social unrest and some climate disasters will be the start of the next, lengthy economic cycle... I also suspect Russia, China and Co have been watching with interest and will be ready to add some fuel to our self inflicted fire.
Ironically, it is a 2.4% QoQ ($354m) pullback in government spending that has led to much of this economic contraction.
Hipkin's policy bonfire, natural calamities in Q1 and end of tourism season will take its toll on Q2 numbers. Q3 will have the effects of phased reintroduction of full RUC and fuel excise and winter construction slowdown. All this while, monetary tightening will continue to bite households who refix at higher mortgage rates.
RBNZ asked govt to stop spending.
The recession is deliberate - RBNZ need unemployment up and spending to fall.... essentially that situation equals demand for people and products stopping rising so quickly and thus prices stop rising so slowly -> which is the definition of less inflation.
The issue surely is the increasingly likely out come of more than expected wealth destruction via house price / asset price collapse, a much larger than planned recession and at the same time continued inflation. Basically the probability that RBNZ loses control of events and needs to drop and raise the OCR simultaneously to solve the problems.. which is obviously impossible... so someone (everyone) has to suck up increasing prices, increasing unemployment, falling asset prices and general financial chaos for a while
The post-Covid response from both fiscal and monetary authorities was grossly overcooked. That is saying something in an economy that has received plenty of stimulation in the last couple of decades for elected officials to save face on policy failures and gradual de-industrialisation.
To say fiscal easing during Covid was inflationary would be an understatement. The hundreds of millions spent on studies and plans by MBIE alone were low value for money and lacked intellectual grunt. No industry is going through a transformation simply because it was dreamed up by policy stooges in Wellington.
100% this. I think that whether we had the current government or were inhabiting a different timeline where National won the last two elections, the chickens would be coming home to roost because society has become more addicted than ever to debt and the impending hangover is looking nastier than mine after university O-week all those years ago.
Successive governments have had a role to play in this of course (for various reasons) but ultimately the average Kiwi consumer has decided - over and over again - to tick up so much in life and the can has been able to be kicked down the road for so long.
Credit cards, car loans, Q-card/interest-free offers, BNPL, leveraged home loans ... in the land of easy money the borrower has long been King. And now the King might be finding out that his throne sits on shaky ground.
A recession will help sort out those people and businesses which hold unsustainable levels of debt.
In doing so, it will restore order to the economy which is never a bad thing. Anyway, a recession is a normal market response following a period of excesses.
Enjoy it while it lasts. Certainly, it will provide opportunities for shrewd (counter-cyclical) investors.
Market discipline rules!
TTP
The Spriukers will only go into hybernation, they may well rise from the dead in the 2030s version of timeshares.
We MUST REMAIN VIGILANT
The best part of this, is there is a very good chance, that I will never have to watch Phil Spencer and Kirstie Allsopp ever again.
TTP, now that your narrative has changed from "its always the right time to buy your dream home" to now buy counter-cyclical and therefore time the market, what advice are you now dishing FHB's? Oh that's right, only if you're in for the long term should you buy that dream home......
Pfft...real estate services still show a positive print +1.9% y-o-y.
The economy was badly led down by the non-productive primary industries (-4.3%), mining (-8.5%), manufacturing (-5.3%), agriculture et el (-4.0%) and Goods-producing industries (-1.4%).
If only everyone all went into property, #recessionaverted
I think the real estate market has bottomed out. Now is the time for renovator so to buy. Interest rates have peaked. The market isn’t going to inflate due to an excess of houses. But it isn’t going lower due to steadying of interest rates. FHBs are looking for nicely done up places in good areas. Now is the time to find that dunger and develop it. Find several if you can afford it. Money to be made, not through inflation, but through doing up tired houses for FHBs. It’s not free money, it involves work and creativity, but money is to be made.
Ha that’s actually one of the reasons why I plan on leaving. Do you think a degree from a woke nz university is going to be worth anything in the future….nah. I want my kids to have access to decent education even if I have to pay……I will be able to afford to in Australia….
I mean the ANZ economists explain in the article why they believe it shrank, there's not a mention at all of "ducking and diving" from Government.
Anyway, if you recall annual GDP growth went negative when it fell from +3% in 2007 to -1.1% in 2008. Curious to know why you think that happened?
Love Iron Maiden! ;)
Yeah - great opening track. Steve Harris also co-wrote instrumental track 'Thunderburst' on the Samson album Head-On (Bruce's previous band) in 1980. This preceded the 1981 Iron Maiden Killers album. He slightly changed the arrangement for 'The Ides of March'.
Refer to 'Thunderburst' at 27 seconds here;
https://www.youtube.com/watch?v=pEPIC8yTvtQ
Iron Maiden. I thought you were referring to Shakespeare.
- Caesar. Who is it in the press that calls on me?
I hear a tongue, shriller than all the music,
Cry 'Caesar!' Speak; Caesar is turn'd to hear. - Soothsayer. Beware the ides of March.
- Caesar. What say'st thou to me now? speak once again.
- Soothsayer. Beware the ides of March.
- Caesar. He is a dreamer; let us leave him: pass.
Of course we can't but neo-liberalism demands we pretend everything's fine until we can't deny it any longer and keep bailing out more and more until there is nothing left. If everyone else cuts we can extend and pretend for a little longer.
None of our leaders or potential ones have the capability to do anything different.
If I understand this correctly; the economy is shrinking. But food is costing more and more and so are accommodation costs.
So in theory, the drop-off in the discretionary economy outside the basics must be dropped off massively to offset the increases in the spend required to cover the absolute bare essentials?
This does suggest a degree of knife-edge that is going unsaid - businesses will point to shrinking economies and employees will still be facing huge increases in living costs. How.... how do we marry these two very real situations up? Can we?
A bit less than I expected. The economy has been sliding since October - median weekly earnings have been flat since then, net borrowing (new loans - repayments) went into reverse shortly afterwards, and Govt is now spending about the same as it taxes. Our economy runs on new borrowing and a bit of net Govt spending - this fuels consumer spending, which keeps people employed and spending. We are royally screwed now. Unemployment will pick up quickly - we are already in a stupidity driven doom loop created by dumb economic and monetary policy. Great work guys.
I lived through that 2008-2013. Went from basically walking into any job I was suitably qualified for (1998-2007) to 120 applicants within 2 days for positions and recruiters finding any means necessary to not consider you for a job you already had years of experience in. Was not fun, and I feel for those who will face it this time around.
Yep.
I kept my job in 2008, but was down to 4 day weeks (so 20% drop in income) for 9 months before I got another job. It’s not just unemployment that causes pain, but also loss of income, cancellation of bonuses etc etc
You learn a lot when you have been whacked in a recession. Hopefully you come out stronger and are better prepared for the next nasty recession, but not everyone does.
You learn a lot when you have been whacked in a recession. Hopefully you come out stronger and are better prepared for the next nasty recession, but not everyone does.
Precisely. Be it living through war or conflict, or through a recession, humans need to reset and be reminded how life is tough and good times don't last forever. It feels like all the QE since 2020 made everything too good for people to accept that the party could ever end and the hangover will be severe.
Hmm good question. On one hand things may be starting, statistically at least, showing signs of tapering off and there is still a large percentage of mortgages to come off fixed rates across the year. Hike again and keep cooking cost of debt, or wait and let the inevitable come as it surely will. Given the level of inflation, the RBNZ mandate, and the level of incompetence within their highest of ranks, I'd be banking on them continuing the onslaught of OCR hikes.
Nothing and everything. For most, nothing - continue on what you're doing. This is why spending has been hard to rein in. But if you look to the future, potential job losses, different working conditions, lower quality of life in consumer terms, lower asset and stock prices, then you can plan for that today and make your own adjustments. Who knows what will happen or whether this is the recession we're all expecting. It will come and go.
The way things are, I'm far more likely to suffer from the higher cost of living or the increase in mortgage rates way before I'm affected by anything a lower GDP throws at me, but I hear what you say.
I wonder if politicians would be more considerate if they were not so insulated from the outcomes of their decisions?
Its going to get worse before it gets better. A record $10.5 billion of new mortgage commitments were advanced in March 2021. How many of those borrowers would have felt comfortable then taking the 1 year fixed deal of 2.25%. When interest rate rises were not even a twinkle in Adrian's eye. They are now staring down a refix next month at 6% +. Every 100k borrowed will be costing additional $72 per week in interest. 800k Auckland mortgage will consume $48000 just to service the interest. That is equivalent to first $63000 of a workers salary.
Apples to apples. Size of debts relative to income. These are equivalent times to the 20% mortgage rates of the 1980's. The question is whether inflation will be allowed to eat that debt today as it did back then.
These are equivalent times to the 20% mortgage rates of the 1980's.
An equivalent mortgage today at 20% would be about $185k when compared with an $800k @ 2.25%. It'll take a lot more inflation to eat away at the $800k debt than the $185k debt. $120k household income, 1.5x vs 6.7x DTI. Income doubles to $240k. 0.7 vs 3.3. etc....
They are well regulated re asset liability duration matching, credit risk is the only way I could see this occuring, sure in a global depression all bets are off as that causes credit stress everywhere... RBA RBNZ will never let funding risk bring them down, they will print if they have to.... even credit risk they will just print..... so only a total collapse in asset prices WITH forced sales. read global depression IMHO and I am reasonably close to this industry....
I am in the construction industry. Bigger businesses really struggling with orders to suppliers down by around 30%. Some more established smaller ones still going okay as OH lower. Developers more picky, price fixing is falling over (the trades openly 'price fix' on social media groups). Too many boys with toys on ego trips loading on debt for the glitzy cash. Good buildings are still getting good rates but assisting clients in efficiency and establishing relationships. I expect that this is a clean-out that is well overdue. Good prudent operators will survive. Although I see that those linked with K.O will get a rude awakening, seems from my inside sources that K.O. has been less 'diligent' on costs.
the trades openly 'price fix' on social media groups
Sounds like ComCom need to be made aware of this. Although they may not have the teeth to actually do anything about it, at least it would prove to the general public they have been rorted for a couple of years and perhaps give more momentum to the growing sentiment of frustration and anger at the decisions off the current gvernement and RBNZ
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.