There will be plenty of what the economists like to call "noise" but there won't be a recession. Not yet anyway.
June quarter GDP figures are due to be released by Statistics New Zealand in the week ahead (Thursday, September 15) and probably the main source of interest in these ahead of time has been whether the economy shrank again.
I say 'again' because the March quarter showed a surprising 0.2% drop in GDP. The Reserve Bank had forecast it to grow by 0.7%.
Such a miss inevitably led to talk that the country might be imminently heading for (or even be already in, given the lag in reporting of the data) a recession.
The 'technical' description of a recession is two consecutive quarters of negative GDP growth. So, since the release of the March quarter data in June there's been a bit of the 'are we there yet?' chatter coming from some in the mainstream media regarding the subject of recession.
Well, unless there's a big surprise in the figures for the June quarter the answer is a fairly definitive no. We are not in recession. Not even particularly close.
For the record, the last time we were in a 'technical recession' was in 2020, when the March and June quarters both recorded negative growth. Of course we did that to ourselves by locking everybody up, with the result that March GDP slid back 1.2%, while the June figure plummeted 10.3%. But this was followed by a supercharged bounce-back of 13.7% in the September 2020 quarter.
The last time we strung together more than two consecutive GDP drops was in the 2008-09 period - when the economy shrank for no less than six consecutive quarters. Now that's a recession.
But back to the present, the RBNZ is forecasting 1.8% GDP growth for the June quarter. Other economists are looking somewhere around the 1.0% mark, although there appears to be some divergence in views as to how strongly or otherwise the economy has bounce-backed from the Omicron-affected March quarter. Economists were still putting the finishing touches to their official forecasts at time of writing this - but I will update you closer to the event.
In the run up to the release of the latest GDP figures, the activity-related data ahead of time have been a bit of a mixed bag. Retail spending, for example had a surprise fall in the quarter. But it is worth noting that a significant part of that was falling vehicle sales. However, the super-strong August vehicle sales figures have highlighted how much that earlier drop was actually related to supply chain problems.
And a positive surprise that will feed into the June quarter GDP figures was the building work put in place figures, which with a 2.6% quarterly rise, were well ahead of economists' forecasts. But there's no doubt that with the Covid disruptions we've had and the ongoing supply chain problems, there's still a lot of that so-called 'noise' in the data. Things are volatile.
At this early stage the September quarter GDP appears likely to show reasonable growth as well, with the RBNZ forecasting 0.6% growth for that quarter.
Beyond that though its expected that the RBNZ's efforts to dampen down inflation - having hiked the Official Cash Rate by 50 points in each of the last four reviews to 3.0%, and with more to come - will start to dampen economic activity.
If there is to be a recession, it may well come next year. The RBNZ itself is forecasting very anaemic growth. It sees GDP rising 0.4% in the March 2023 quarter, but then this being followed by a 0.0% result for the June quarter. Then the central bank is forecasting 0.1% growth for the September 2023 quarter and 0.2% for each of the following quarters right through and up to September 2024.
It wouldn't take much of a 'miss' in these forecasts to see us into recession territory and maybe for a little while, depending on exactly how things work out. But with or without the recession handle on the economy, things are projected to cool down a lot from where we are at the moment in coming months, and indeed years. We may or may not be heading for a recession, but we are certainly heading for a very soggy period.
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