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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81 Comments
If there is to be a recession, it may well come next year.
Yes, the Reserve Bank has allowed inflation to get away from it, but I think the greatest threat of a recession is by talking ourselves into one. You will always be able to find an economist willing to take a punt on a recession call.
And in other news, USA is choking the money supply at an alarming rate, Europe is in the poop already and China has released a shrinking economy on top of a property collapse. Inflation is going to the moon overseas except in China and RBNZ is still sitting in it's hands hoping for a soft landing...
do we really have many options available? we are tiny globally and will suffer the wrath of the big players.
my general feeling is that people were a bit gloomy a few months back and talking us into a recession, but are slowly realising that we have low unemployment and things are actually pretty rosy. A good set of GDP numbers might change the mood a lot quicker. There will be some people seriously hurting from inflation and interest rate hikes, but also a lot of people happy with their decent pay rises, their job prospects, and their not quite so high but still very high asset prices. The unemployment rate needs to go up a lot before we see a recession IMO.
Aging populations will be felt differently depending on foundations.
Japan got to quite a high level of gdp per capita before plateauing for the last 30 years. Their public debt to gdp is one of the very highest in the world, just to keep things going. But overall, they'll be ok.
Germany is kind of the same, they've managed to develop a high value economy who's coat-tails they can ride on for a fair while.
But then places like Italy, Greece, Spain, etc, kind of disastrous, less workers having to maintain commitments to retirees that is through the roof.
China, very hard to say. They only just really industrialised. How much valuable IP do they own?
NZ I'd say is headed somewhere between the likes of Greece and Germany, assuming we don't continue pursuing a population model of flat or increased growth.
When the FED hikes (have said they will raise much further and it will cause pain) .....NZ must then hike larger.
The USA market is somewhat less vulnerable to rate hikes as many mortgage loans are at fixed rates set for 15 or 30 years. NZers commonly take 1 or 2 year terms.
With high rates - NZ housing is screwed.
When the FED hikes (have said they will raise much further and it will cause pain) .....NZ must then hike larger.
I think you get this much better than the layman Gecks. Basically, I think that people's thinking of the 'big picture' is limited as they gravitate their thoughts towards their own environment. They don't understand how connected the monetary system is and the implications of how others' behavior influences the behavior of their own ruling elite.
Anyone paying attention to Japan should understand this, particularly as it has relate to the recent disintegration of the yen. No doubt the interest rate differential has an important role.
@fitzgerald you are the definition of a DGM with some pretty wild predictions. The Sydney, Melbourne and all housing markets are also going to crash tomorrow with rising interest rates. Basically the world is coming to an end! And no I don’t expect house prices to rise any time soon before anyone gets my words twisted. #softlanding # crazy rises from the past two years being wiped away.
Close. For those who can remember it...."There is no depression in New Zealand" Blam Blam Blam.
Looking at the most recent developments with the Fed posture, I would not be surprised at all to see the RBNZ being forced to raise the OCR to a peak close to 5%, and to see mortgage rates north of 7%. In any case, an OCR peak of 4.5% minimum is almost a certainty.
I think there will be growth this quarter but less than what the economyths are predicting. I reckon 0.7-0.8%.
I think the next quarter will be negative, and the one following that = recession.
Interesting seeing that resource consent applications are down about 20% in the last 1-2 months. Unsurprisingly. A slump in residential building will be a key contributor to recession and rising unemployment.
The reserve banks and governments have been swimming against the tide for several years. The natural order of things is a boom bust cycle. Them boom was stupidly prolonged for political reasons and for the elite to transfer more wealth to themselves (no conspiracy just greed and power hunger).
When we look back on a period of negative interest rates, massively over priced assets (caused by almost free credit to buy overpriced assets and herd mentality causing belief it would eternally boom), bitcoin (tulips), climate change effects becoming pronounced, energy peak caused by energy shifts and a pandemic followed by geopolitical shifts and war. We will wonder why everyone couldnt see a massive crash coming....
Believe the economists, governments, media, RE agents and banks at your peril. They all have agendas. Instead do your own thorough research and understand that 10%+ interest rates, 70% house price falls (from peak) and a serious depression are as likely as 3% rates, house price rises and BAU next year.... it just not in many peoples interest to talk about that
Research.
The news (from multiple sources), books on economics, read up on events like the irish property crash, population growth and drivers, get out and talk to people in different industries, ask about hyper inflation , depressions, recessions, taiwan etc.
Thats before deciding whether or not to buy and how much risk you want to take....
Most people i know who buy investment properties look at the last 10ish years of data, read media and talk to friends who had one and couldnt wait to buy.
We have google now.. so this can all be done from an armchair... amazes me how still hardly anyone bothers. Especially when getting this stuff right can halve or more the number of hours and years people have to work for.. in return for a comparative short period of reading and reflection.
When we look back on a period of negative interest rates, massively over priced assets (caused by almost free credit to buy overpriced assets and herd mentality causing belief it would eternally boom), bitcoin (tulips), climate change effects becoming pronounced, energy peak caused by energy shifts and a pandemic followed by geopolitical shifts and war. We will wonder why everyone couldnt see a massive crash coming....
Noticed someone had to drop the ol' rat poision into the mix here. But the reality is that BTC is but a blip in the ocean compared to the expansion of the global money supply. As an asset class, I remember when it passed the total value of the NZ housing mkt. But important to remember that NZ is just one housing bubble among the Anglosphere housing bubbles. The housing bubble and ol' ratty are chalk and cheese.
What's more, many of those who follow the movements of the ol' rat poison understand that what is happening to its price is all quite normal. Many believe it still has another 85% to fall from its current price and the old school Bitcoiners are not rattled by these price movements as they see the asset class differently. This doesn't fit with a tulip mentality picture pained by the mainstream suburbanites, the financial industry, and the media. People are not mentally equipped to deal with assets that behave differently to how they expect assets should behave. You know. Like Granny Herald and its 7-10 year house price theory.
So while BTC has emerged for a number of reasons, to suggest that it's 'just another bubble' could be a lazy claim, even though you cannot entirely discount that possibility. The world is looking for 'sound money' and people might be foolhardy if they don't have exposure to suitable candidates.
Totally valid. Bitcoin may or may not be a valid investment option. Some exposure to high risk investments may or may not be a good part of a valid investment strategy.
I prefer sound fundamentals of businesses i can fully understand in markets that i can understand. So 95%+ of my investments are boring .. but they tend to rise at reasonable paces whilst i surf.
My personal opinion is that bitcoin will crash with houses.. and when debt costs rise. However other far smarter people made millions from it. So maybe it and housing will continue to rise.
It will be interesting.
My personal opinion is that bitcoin will crash with houses.. and when debt costs rise. However other far smarter people made millions from it. So maybe it and housing will continue to rise.
Sure. Probably the most reassuring thing for me about Ol' ratty is that the community is most accepting of the 'price' to crash. That's quite unlike the mentality towards any other asset class. F'more, it's not pussy foot stuff. Notice I said 'crash another 85%', which would take the price towards USD3K. That's a pretty bearish take but anyone suggesting that the probability is non-existent is fooling themselves.
I think the possibility of everything crashing is obviously there. And the correlation with ratty and housing is not clear to me, unlike the correlation with equities and tech stocks.
CPI adjusted card spending data provides the best leading indicator of GDP changes in my view (90% correlation since 2010 between rolling annual change figures for GDP(E) and CPI-adjusted card spend). I predicted the slight Q1 fall using that data, and whilst this quarter might be just positive, I would argue that 'Well clear of recession' is an optimistic call to make! The ANZ forecast of around 0.4% (?) for the quarter looks the closest.
Jfoe,
I don't know if you are an economist or not, but you certainly know your way round the money markets. Have you ever spent time looking at the RB's on-line Dashboard?
I have been following it since the beginning-I even made a short submission-and have found few people who have even heard of it, far less tried to use it. Do you have an opinion?
I studied economics and maths / physics / chemistry in my first year at Uni (a long, long time ago). I dropped economics because I could not handle the obviously nonsense assumptions being fed into the stupid models. When you study an actual science and economics at the same time, it is hard to keep a straight face when the economics lecturer is asking you to assume that all humans are perfectly rational and well-informed, that everyone has the savings and employment they need etc etc.
I don't use the RBNZ dashboard much because I like to get the raw data from infoshare. I like the banking information though - e.g. the settlement balances for each bank (bank assets described as bank deposits), and how many debt securities each bank has.
CPI adjusted card spending data provides the best leading indicator of GDP changes in my view (90% correlation since 2010 between rolling annual change figures for GDP(E) and CPI-adjusted card spend). I predicted the slight Q1 fall using that data, and whilst this quarter might be just positive, I would argue that 'Well clear of recession' is an optimistic call to make! The ANZ forecast of around 0.4% (?) for the quarter looks the closest.
Thanks for your typically insightful comments Jfoe. It makes intuitive sense to me that CPI-adjusted card spend can be a reliable indicator / independent variable to understand future GDP movements. Is this card spend data publicly available? Where can I see it?
The electronic card spending data is here: https://www.stats.govt.nz/information-releases/electronic-card-transact…
You have to roll it up into quarters to compare it the GDP data available here: https://www.stats.govt.nz/information-releases/gross-domestic-product-m…
You can use the GDP deflator or CPI index to 'inflation adjust' the card spend data. They both produce similar results.
Always dangerous making predictions - especially when we're blowing in the wind of global storms. But, some quick reckons(!)
In the short-term, it looks like we are going to hike interest rates again - stopping around 3.5% as unemployment starts to climb more quickly than politicians can tolerate. The last gasp of the rate hikes will make no difference to the drivers of price increases apart from some minor protection of the NZ dollar - but RBNZ are in a pissing contest with the other equally impotent and deluded central banks.
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 - with a 25% change of seeing one this week! Next release of CPI quarter will be a bit over 6% year-on-year (but most of this is already baked in).
House prices will stabilise quickly in the next few months because the fundamentals have not changed. There might be some movement up / down towards the end of 2022 if mortgage rates move down / up.
Rents will continue tracking up overall (across the whole stock) with year-on-year changes averaging 3.7% over the coming year - roughly matching wage increases like they always do. Expect to see more build to rent interest in NZ - with expansion only constrained by our stupid dad and son in a UTE construction model. Build to rent will lock in high rents forever unless Govt are smart about where they put their subsidies (clue: don't give the subsidy to the tenant so that they can afford higher and higher rents!)
Next quarter's employment data will see people screaming about high annual wage rises - with only a few people smart enough to spot that the increase is primarily the result of a low baseline in 2021, and increases to actual take home earnings that took place before Christmas.
Whether Labour win the next election will depend on whether we are rising out of the slump or not by late 2023 - incumbent NZ Govts never win elections when house prices are falling or stagnating.
In the medium-term, we are totally screwed.... We have the wrong industries for the 21st century. We are reliant on trade with China that looks risky as hell. We are destroying our ecology. Tens of thousands of our houses will be uninhabitable / uninsurable by the early 2030s - quickly cancelling out any gains we have made in house building (if they have not been swallowed up already by us having to import the qualified people we need because we have a 20th century education and welfare system). On top of all of this, we appear to have lost our ability to plan strategically as a country - naively thinking that tweaking market incentives will help us achieve the transformation we need to leave a decent country for our children.
Predictions are indeed dangerous , particularly those about the future ... I'm wondering why we don't have a government Minister of Technology who actually knows what the heck it's all about ... Dr Clark knows God ! ... he seems to know F. all about anything else ... .
... primary produce won't keep us in prosperity ... logs & milk powder can only take us so far ...
We need to transition towards a knowledge based economy... science , medicine , online games ... the future isn't what it used to be : Wakey wakey NZ ... adapt or die !
We've been trying to pump the knowledge economy for decades now. All that seems to have resulted in is an extreme lack of practical skills based workers. I'm not convinced it's close to the answer, because there's not a lot of competitive advantage to be had there on a planet with billions of other minds, most of which can operate far cheaper than in a developed economy.
Really we need to add value to fields we're already competetive in.
. . agreed , we should build on our strengths ... which means , enormously valued added products being exported ... not raw logs nor milk powder ...
And ... we have a history of scientific & medical breakthroughs emanating from simple little NZ ... but , no follow up ...
... we're importing vaccines & medicines ... we should be at the leading edge of research , and exporting them ...
Interesting though, is that education and curiosity-driven innovation are not uniform across different regions or societies. Which might suggest that investment in education and critical thinking is hugely important. It also is attractive to human capital, in that people seem to like being in societies that invest well in these things.
Cheers.
I think it's a useful and important indicator if the thesis about the wealth effect holds. Remember I've not empirically tries to prove my thesis on 'the way up', but looking at this could be useful. It doesn't actually prove how consumer behavior is changing in any meaningful way (I believe we have a mountain of data to understand such things but it's all in private sector hands). But considering how consumer spend is an important part and driver of GDP, everyone should take note.
The recession term may not be the right one for the times we are in. The inflation is not going to be tamed anytime and is going to stay higher than the RBNZ target range (China COVID lockdowns, geopolitical causes will keep energy prices up). Low Unemployment, High energy price, high inflation, OCR higher(going higher), low business confidence- I would call it Long-Shallow-Repression.
Most of the best economic times have seen highish inflation, maybe more around 5% than 7% to be fair. 2% inflation is normally a sign that things aren’t going that well, kind of describes the last decade, not terrible but not great.
but yes I was talking about my own situation, inflation is great for me, it’s paying down my debt. I think that is the case for a lot of middle NZ although there may be short term hardship. But surely the lower income are doing the best, the demand is highest there, the unskilled have a serious opportunity to grab a much better job. Again there might be short term pain but very long term gain.
Good article... what's the word oh yes pivot
Fixed price contracts and five per cent deposits: the building industry offers incentives
https://www.nzherald.co.nz/bay-of-plenty-times/news/fixed-price-contrac…
You can label it whatever you want....
I'm reminded of Steve Keens predictions. He reckons the second derivative of credit wrt time is the magic predictor of good and bad things. The rbnz has a nice graph here but they dont show the derivatives, so here they are. Looks pretty ugly right now. It also looked ugly in 2021 but back then we had deflation and the central banks and governments of the world came together to pump liquidity like crazy. It's different today.
Classic boom bust stuff. Total credit acceleration is deeply negative. The housing specific series is more negative now than it was at the worst point of the GFC, but now we have high inflation and a central banks committed to monetary tightening. I read the tea leaves as saying that we're on the precipice of something quite nasty. I predict that my houses will lose all the capital gain they made over the covid period. That's sad because my GF told me that if I made over 1 million in capital loss she wouldnt like me anymore.
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