New Zealand's economic activity fell 0.1% in the March 2023 quarter, putting the country into a technical recession as measured by gross domestic product.
The decline follows a 0.7% drop in the December quarter (revised from an earlier announced 0.6% drop) and meets the recession definition of two quarters of negative growth.
For many people, economic conditions have already felt recessionary and this data release is just technical confirmation of what has already been experienced in the first half of the year.
In a note prior to the release, BNZ chief economist Mike Jones said recording two consecutive negative quarters didn't really matter in the context of "generally recessionary conditions".
Sectors that are particularly sensitive to higher interest rates, such as residential construction and retailers, have already been in recession for sometime. Meanwhile, sectors such as tourism are experiencing growth as they bounce back from covid.
"The net of all this still adds up to flat-lining economic growth, but the point is that everyone’s perception of the recession will be different depending on where you live and in which sort of industry you work".
Stats NZ said there were a range of results in different industries over the March quarter, with just over half in decline.
Business services, such as consultants and engineering services, was the biggest downward driver with a 3.5% fall in activity.
That was partly offset by a 2.7% increase in information media and telecommunications, such as publishing and film/sound recording.
The quarter was impacted by two cyclones and a teachers' strike, the latter had a negative impact on education services which declined 1.9%.
"The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services," said Jason Attewell, an economic insights manager at Stats NZ.
Primary industries have declined half a percent in each of the past two quarters and has fallen 3.2% in the year ended March.
Economic expenditure dropped 0.2% during the quarter, driven by businesses selling down existing inventory and a fall in export services.
Household consumption increased 2.4% and investment in fixed assets was up 2%, which partially offset expenditure declines.
Annual GDP growth in the year ended March was 2.9% and economists are forecasting approximately 1% growth across 2023, despite the technical recession.
New Zealand's real purchasing power fell 0.9% per capita, meaning consumers might feel worse off than the 0.1% GDP measure might suggest. The Reserve Bank of New Zealand had forecast a 0.3% increase in GDP during the March quarter as part of its May Monetary Policy Statement.
169 Comments
Said it before but basically we are going to have to just put up with any more inflation from this point. The RBNZ are not going to hike rates further. Regardless of inflation the RBNZ will just use the data to back them up. If we are in a recession, then that's EXACTLY what they engineered so job done as far as they are concerned. Now it's just wait and watch as inflation falls back into line and that will take until next year. Remember inflation is a rate of change not total amount of change so it can drop on a dime.
"The RBNZ are not going to hike rates further" vs "Fed announces pause but signals more hikes to come"
In defence of our currency, the RBNZ will by now already know they may not have a choice.
https://www.youtube.com/watch?v=y-uShjPJyC8
fed were always going to signal "more hikes" when they first hit pause. They know the markets been on the edge of its seat expecting a slow down and rate cuts so can't play into that narrative which will undo all the work the hikes to date have done in dampening demand.
Ever get the feeling that no matter how much we think we have freedom of choice, we are simply being mass-herded like sheep in this world? When following such macroeconomic principles and contemplating that it is realistically just human behaviour and how to best influence it to prevent catastrophe, it seems valid.
Nationals cycleways are actually really good. It’s the crap that is getting done now that is the problem. For example cycle ways with parking on one side and traffic on the other, road furniture that you have to dodge, not to mention the fact that all the crap from the road gets pushed onto the cycle lane and never gets swept (see crap design of road furniture which means it can’t be swept). I guess lefties don’t actually ride aye?
Who are you calling a lefty?!?!!
Also what do you mean National's cycleways?
Most urban cycleways are delivered by local authorities, some are in motorway designation and delivered through Waka Kotahi but they generally have bi-partisan support.
You will not find me disagreeing with any of the issues you've just highlighted, but none of these issues are a left/right issue, they are just piss poor design e.g.parking on one side and traffic on the other is a terrible design, if there is parking, you want it between the traffic and the cycle lane.
Simon Bridges as Transport Minister kicked off the Urban Cycleways fund and it was a great initiative.
Cycling should not be a political issue. If anything it's more aligned with the values of the Right, freedom to choose what transport mode to use, freedom to go wherever you want and not be beholden to timetables and specific routes, much more cost-effective that other modes and more fiscally prudent, more affordable maintenance, etc...
Possible, we'll see. I'm still of the opinion that inflation's going to remain high and the Reserve Bank will have to swallow a rat and nudge it up further. After all, we're in a stagflationary environment rather than a traditional recession thanks to the spectacular Covid mismanagement. The ripples of all that money printing haven't come close to dampening out yet and the government's budget wasn't nearly as restrained as it should have been.
You don't say why you believe this. Allow me to say that you are wrong. My reasons:
1. inflation is falling all over the world.
2. Some large economies are actually introducing stimulus, e.g. China
3. It's winter. The next quarter will show NZ still in recession.
4. Inbound tourism still isn't back to pre-covid levels and won't be for some time - probably years.
5. The wealth effect from falling house prices is neg.
6. Election uncertainty.
7. Still lots of mortgages to roll over to new rates.
8. Building and construction will continue to fall.
9. Layoffs and contraction continues.
10. Un-sold new houses sitting in the housing market and going nowhere.
Mainly because NZ's inflation track has proven to be longer and higher than most of the world, excluding pockets of Europe. Would be easier to make a prediction if we looked at inflation monthly but given the info coming out we've seen (like food inflation staying stubbornly high, dollar value falling over time making our balance of payment deficit more inflationary etc) I think we're not quite done yet for OCR increases.
I might be wrong, and I don't believe that the OCR will hike massively but I think that continued high inflation will force their hand somewhat and need to give it another nudge to get things moving in the right direction.
You think taxation gets spent solely on public servants?
Publicly-funded contracts feed about a third of our economy - construction companies, IT companies, education providers, social support providers, logistics and of course those public servants (not just the policy wonks) - police, firefighters, nurses, teachers, mines inspectors, defence forces, DOC rangers.
Companies like Fletchers would die without government.
Why? Borrowing got us into this mess and, with interest rates sitting below inflation, borrowers are still benefiting unfairly at the expense of earners and savers!
It's not anyone else's fault if you borrowed a million dollars against an overpriced asset and they shouldn't be paying to bail out your mistake.
It's worth looking worldwide. An over-focus on NZ alone won't get you the full picture.
Worldwide, weather has affected the supply of many staples resulting in shortages and price rises. So, not just in NZ. Further, Pootin - just over a year ago now - screwed the supply chain for many core goods. Globally, the world has largely adjusted but supply constraints remain.
Take one stable - sugar. Seems an inoculous product, right? But when oil prices rises, sugar goes up. Weird, huh? See the commentary at the top of this link to understand why. https://tradingeconomics.com/commodity/sugar ... Yesterday's food prices increases included a jump in non-alcoholic beverages ... Now you know why. After water, sugar is their main ingredient.
Fizzy drink producers have had to rely on imported CO2 for carbonation. Have you noticed the prices for domestically produced Coke and Pepsi products have been on the historically higher side for the last few months? Some fast food chains handing out cans and bottles because they can get gas for their post mix systems.
Yup. Another example.
Unlike my sugar example, the CO2 one is completely self inflicted by a major NZ supplier who is running their plant into the ground and creating tonnes of additional greenhouse gasses in the process. Once the plant fails, expect them to go gap in hand to government for cash to upgrade it. (National will hand it over gladly as thanks for their donations. Labour and the Greens will also - to save the planet. And the Public? They'll all be in the dark wondering how the rich get so rich.)
Inflation and recessions can occur simultaneously.
While true for the period of time we last had serious stagflation - we live in very different times today. No serious economists are predicting a return to stagflation. But there are a lots of pub-economists claiming it will happen. Why do they do this?
The answer is simple. They stand to gain from it. Take, for example, a close relative who employs over 50 people. The workers ask for pay increases. They reply that stagflation will mean further rises in the OCR which will kill the sales and the business will need to downsize and many workers will lose their jobs. They also add - because the business would like to reduce headcount already - that the employee is welcome to search for another job that pays better.
I agree with this list but yet nominal interest rates are still below current inflation (negative real yields). The Taylor Rule tells us that monetary settings are still far too loose to get us back to a 2% inflation target. Perhaps inflation will abate dramatically despite this fact, but that would be at odds with history.
The Taylor Rule has a number of quite serious limitations.
It is used most often as a starting point for further analysis. To base one's actions on what you think the Taylor Rule tells you about the future is a complete mistake. And one that will cost you big time if you do not apply further qualifications.
Yeah...nah. If the US keeps going we will have to continue to push ahead on rate rises as well. Can you hear the echo of the recent IMF report "housing in NZ overpriced". Too much debt not supported by income, also called speculative gambling. Good luck to the specuvestors with that debt rollover.
Manufacturing was down 1.1 percent, driven by petroleum, chemical, polymer, and rubber product manufacturing
Didn't MBIE and Megan Woods assure us all that NZ is better off without the refinery in Northland? Here we are almost a year later and we've not seen the full impact of the closure on our economy (CAD, GDP, etc.).
Not implying the government should've blocked the shutdown but this is yet another case of our government ministers lying to save face.
I mean stagflation is a shrinking economy combined with high inflation. They aren't wrong, it just depends how you define "high inflation", which most would say "beyond the target band of 1-2%". Personally I am with you though, I think inflation has all but stopped (reporting of it is so delayed here, it's not funny), so more like a recession.
This chart is a great visualisation of where taxes are being spent on welfare / super,a bit out of date, but still relevent apart from the wage subsidy portion.
https://figure.nz/chart/2eIStXKBWssxMIze
They were a sucker for punishment. Hell, they couldn't even save up the equivalent of 2 - 3 years wages to buy the house with cash, instead had to rush into buying a house with 3 mortgages at 22% interest rates.
Frivolous generation, who have since continued to borrow to accumulate surplus properties to their shelter requirements so they can rent to younger generations because they're incapable of saving for their own retirement.
I disagree. I don’t think it feels any different out there- restaurants, bars, cafes busy, airports busy, plenty of money with the grey brigade and corporate crew. Yes everything is a lot more expensive and it’s hurting but it doesn’t ‘feel’ bad out there, to me at least.
Soon they'll be desperate to offload old stock when the new models come in. Trick is to lowball an offer with confidence by a good margin, watch them scoff in front of you, then hear the change in tone when they call you back in 3-6months to ask if you are still willing to proceed with that previous offer.
Just caught a taxi home after client lunch. He was over from Oz but used to live in NZ. He couldn’t believe how quiet downtown Auckland was and commented that it felt unsafe.
Restaurant was half empty then cab driver told me turnover was well down and that couriers and taxi drivers all reporting a slowdown in the last 4 weeks.
Fish and chips hasn’t been the good value meal it used to be for about 10 years… And as for retail even during the boom years you’d walk around some shopping areas wondering how the hell they kept the lights on, I think that’s been a tough gig for many for a long time
That's location dependent. For example it is possible to get cheaper fish and chips in Wellington than Nelson, despite Nelson having a bustling fishing port. Conversely Timaru has a bustling fishing port and, as well as Christchurch, has fantastic prices for fish and chips.
Agreed. Apples, Potatoes, Carrots, Mixed Frozen Veggies, all can be had for around $4 per kg. Add in ~$1 per hour of electricity to run your 3kw stove.
"But healthy food is soooo expensive"
- A 200 gram Big Mac burger is what? $8? $40 per kg.
- 150 gram packet of potato chips? $20 per kg
Healthy food is not expensive, people are just lazy and full of excuses.
So I'm "completely out of touch" for taking my daughter out for dinner ex-agent? So, because others can't afford it, I shouldn't do it? I guess by your logic, all restaurants should close right away then, and all clothing shops too because some can't afford new clothes, and what about tech shops? Can't go watch super rugby because others can't afford it… I guess you don't drive a car because others can't afford one and that would make you "completely out of touch"
Think before you post!
Yvil I am happy for you to go out for dinner with your daughter. I regularly go out for dinner with my wife. We regularly buy fish and chips and Thai takeaways also. Everywhere I go it is slow and they have all laid off staff in order to cope with the downturn. Where we get our fish and chips they have laid off all their staff and the owners are working very hard. Where you went for dinner is not the norm. That’s all I was trying to say. As always you twist things to suit your very unique thought patterns.
"As always you twist things to suit your very unique thought patterns".
No I'm not, here are YOUR own words:
by ex agent | 15th Jun 23, 12:25pm
A lot of New Zealanders cannot even afford a humble meal of fish and chips let alone a restaurant meal I think you are completely out of touch.
You said I was out of touch because I went out to a restaurant with my daughter!
I said you were out of touch because you told us where you went was busy and you inferred it is the norm. Where you went for dinner is not the norm. A lot of hospitality is very quiet currently. That is my experience. I talk to the owners and they are happy to tell me how they are trading. We are in a technical recession. Go and talk to some people in hospitality. Then you will see how difficult it is for them. Many New Zealanders have cut back and are cooking more home meals in order to survive financially. Look at what has happened to My Food Bag’s turnover and share price.
The quarter was impacted by two cyclones and a teachers' strike
I am sure there are overpaid comms stooges out there right now briefing Cabinet Ministers, particularly Chippy and Robbo, to dodge all questions around NZ being in a technical recession with these 2 excuses.
Hate to say I told you so (comment from mid-2022): 'We might just get away with RBNZ's macho rate hikes if the global drivers of inflation subside before increasing unemployment and reduced demand take us into a prolonged downturn. Regardless, I still see a technical recession early next year'
Worth noting that massive inward migration nearly saved us - GDP per capita was actually down 0.7% this quarter compared to GDP being down 0.1% overall!
Produce more stuff than we consume.
Such statements are hit back with all kinds of excuses such as our tyranny of distance, which somehow does not seem to be an issue when ships are inbound from elsewhere loaded with all kinds of stuff. The distance is more of a problem when we're the ones exporting.
Even our service exports largely involve bringing planeloads of visitors and students here for low value spending (tuition fee makes up roughly 20-25% of "export education" depending on study level with the remaining going towards accommodation, retail, food and other services).
which somehow does not seem to be an issue when ships are inbound from elsewhere loaded with all kinds of stuff
Pretty easy really, the people making most of the stuff coming inbound are getting paid next to nothing, with few of our regulations and protections, with access to a much wider pool of suppliers. The cost to freight it here is more than made up for by the much cheaper price to produce said good.
Yeah, with those easy gains to be made by importing and selling cheap goods, it should come as no surprise that most of our NZ's top 50 listed companies only cater to the domestic NZ market. Look at how high the ROE the likes of Briscoes and the Warehouse make, what incentive is there to support local manufacturing?
get paid more in a consumer economy than when we used to make the stuff we're buying
Are we getting paid more though? We were #18 in the OECD on average wages, which I suppose is due to a few heavy-lifting sectors and also to some extent pushed up because we have the highest minimum wages in the OECD.
Our manufacturing sector in the 80s was largely a product of our protectionist regime where international companies were forced to import parts from overseas and get them assembled locally. Those assembly jobs required skills and attracted a decent wage, but the actual high-wage jobs in product innovation, automating processes, tooling, etc. were still overseas.
That's what China has come to realise it needs to do more of to move from upper-middle to high-income, as did SK, Taiwan, Singapore, etc. in the last few decades. Very few particular countries have achieved economic success in recent years without a strong industrial base fuelled by high-skilled knowledge workers.
Job growth is still strong in the current quarter, so net migration could remain strong for a while.
A labour economist from an Aussie university explained it on a podcast (I believe the same applies here in NZ). Much of the recent job growth has been in lower paid, lower productive sectors such as hospitality, admin and tourism.
In other words, we have headline job growth and low unemployment because more workers are employed in sectors that produce less than the average, which explains the drop in GDP per capita (Aussie GDP was still slightly positive).
This will likely continue until we either rebalance our economies with job growth in more productive sectors or supplement the productivity/income shortfall with cheap debt. My bet is on the latter!
Like the last one - this one will be revised downwards too. So 0.1% will be more like 0.3% or more.
And the next one? More contraction. (It's winter after all.) Probably circa 0.7%. So three quarters.
Methinks the RBNZ has done plenty enough! After the next one ... The talk for a drop in the OCR will be loud and vociferous - but as always - completely missing the point!
Time for the RBNZ to drop the OCR and come up with more targeted tools. E.g. one rate for building and real investment where stuff is actually created. And another rate for buying existing stuff, e.g. houses, and consumables including cars, boats, etc. And maybe even thinking real, real hard about supporting 30 year fixed rate mortgages.
Read what they actually said. They want inflation to come down. They are okay with a mild recession. And no - if inflation starts coming down - they do not want to push up unemployment unnecessarily.
My comment is about what I have said before on numerous occasions - The RBNZ has done enough - if fact probably too much. Their OCR tool clobbers far too many and not the right 'many'.
The solution is obvious.
The price of everything need to fall....except for One Thing. And that's the problem.
That One Thing requires more Debt to keep it going, because without it, then the worst of all evils will transpire - property prices will drop like a stone.
So pick your poison. Either way, something's going to have to give.
(NB: Can't you hear the excited chatter already? "The OCR and Mortgage Rates are going to fall! Borrow as much as you can, short, and buy, buy, buy before prices rocket. And refinance at 2% in 18 months time". If you can't hear it, I'm sure you'll read it in the MSM in no time at all.)
Our government is on to it. The One Thing can be made to go up without increasing debt. NZ is going to increase immigration and reform the RMA to make it much more difficult to build.
Pay no attention to the people living in cars and under bridges. We will all be rich.
Sounds like the USA, where they are fed that with enough hard work anyone can become mega rich and life a luxurious and extravagant lifestyle, just keep working more, and harder and it will simply materialise. This being fed from the gigantic corporations that eat and swallow success from others to bolster their own wealth, power, and influence in the political scene in order to once again, increase their wealth, power and influence.
The dream is a myth spread by those at an eschelon only 1% will ever reach while the 99% live in hope.
On a positive note, the election is getting closer by the day woohoo! Election parties this year are going to be massive, and we'll have another day of low productivity following nationwide.
All this Government borrowing to either maintain or repair infrastructure and there seems little growth to show for it. Now it appears we have to pay elevated rates of interest on it for years to come.
What would growth have been if we had not borrowed? It does lay bare what, as a country, how wafer thin our "prosperity" is. Slow clap for the great achievements made selling overpriced houses to each other....
How did that go during Covid? Check out the 'of interest' podcast with the S&P analyst who said the rating agencies are watching NZ's deficits very closely.
The very fact that the Crown borrowed and spent billions during Covid without increasing our productive capacity meant all that demand stimulus led to the sharp increase in our current account deficit.
Another round of borrow and spend to keep the economy from sinking further could be met with a rating downgrade. I think we have reached the end of the road on stimulated growth and an "adapt/reform or die" scenario emerges.
Borrowing for infrastructure does not help pull an economy out of a recession since infrastructure projects have a long lead time for planning and design before breaking the ground. Let's admit given the last 6 years that we're horrible at getting public-funded capital projects off the ground (shovel ready, Kiwibuild, PGF, etc.).
Which only leaves the government to borrow and spend in order to stimulate aggregate demand. That is no longer an option since we have maxed out our ability to import goods and services without getting whacked for it by credit rating agencies.
That's coming. We're a busy exporter, growing company kind of out of phase with the economy at present. We've gone from not being able to find ANYONE to fill roles, to maybe one or two good applicants. Now we've got decent people door-knocking just looking for a job. Been quite the change in six months.
Bunch of elasticity in the market will make the number stay low, but it'll tick up as sure as eggs is eggs.
Indeed, even in IT. I used to have 4-5 recruiters a week calling me to jump ship. Haven't had a single one in about 3 months now. And I used to be able to recommend people into roles and they were almost the only applicants, but now I know of a few people unemployed for a month or so.
Unemployment numbers are a lagging indicator, I am almost sure they will actually be at around 5% now, just not recognised. We have also imported something like 70k people while the labour market flipped completely.
It's about to get ugly.
Banks that put up a sneaky rate hike past few days knew it was their last chance to get one through before "recession" headlines and narrative filled the country.
Numbers starting to finally reflect reality, although still lagging OCR hikes, next move to be cuts now almost a sure thing before xmas.
Agreed. There will be plenty of talk about OCR cuts before Christmas with the RBNZ doing their best to talk down any cuts so people don't go crazy on a big Christmas spend-up. So probably no cuts until the stats are in for the Christmas period. So maybe April/May '24? That said, it's conceivable that other countries cut before Christmas and we may be forced to do the same (but I feel that's unlikely).
Don't see any cuts until the inflation figures fall in line. My best guess is mid 2024 at the earliest. No way the RBNZ wants to trigger another big spend up. Going to be another 12 months at least as current mortgages are rolling over and the current OCR starts to really bite.
US inflation fell from 4.9 to now 4% in 1 month.
China is now considering stimulus measures.
Oil supply is being tapered to try drive up price and yet it's still falling and sitting near half peak early 2022. Oil filters through most things, fertilizers, freight, plastics, construction, anything that moves or moo's.
I see rbnz bringing OCR back to 5% by year end. Central bankers fear deflation more than inflation and 5% is too hot for the amount of debt held privately in housing and small-medium sized businesses
I agree that governments, households and businesses have unsustainable levels of debt and are breaking under the pressure of high interest payments. A ~2% OCR seems reasonable at this stage but not lower than that as household consumption is still fairly warm globally.
Local Otago sawmill supplying construction said ordering abruptly dropped near 50% about a month ago.
My guess is that orders for the good ole 100x50 are made about when the found goes in. So if you ordered you are busy till Christmas. Those who can't order, idle much sooner.
I think that most residential framing is prenailed by specialist 3rd partys these days so probably leadtimes well in advance of foundation (maybe ordered when builder schedules site ground works & drainage ?). Crunchtime the week before the election should focus minds.
If Inflation is a monetary phenomenon why are the RBNZ not reducing the money supply
https://www.ceicdata.com/en/indicator/new-zealand/money-supply-m2
If you look at the 5 year chart you can see the money supply (m2) went up with covid and hasn't come down.
Coincidence or?
UH OH! BANKS IN AUSTRALIA ANNOUNCE WITHDRAWAL LIMITS
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