Recession? What's that?
New Zealand easily avoided the 'R' word with a 1.7% rise in GDP for the June quarter. This reversed a 0.2% fall in GDP in the March quarter and meant we avoided two consecutive quarters of a shrinking economy, the 'technical' description of a recession.
The latest figures were strong enough to have ASB economists quickly revising their forecasts of the likely peak Official Cash Rate. They now see it peaking at 4.25% early next year, having previously forecast 4.0%.
ASB chief economist Nick Tuffley said the second quarter GDP "was stronger than our expectations, with signs that momentum in the second half of 2022 will be also stronger than we have been anticipating. This adds up to the risk that inflation pressures will be even more persistent."
The Reserve Bank (RBNZ) has had some pretty big misses with some of its recent economic forecasts, but it was closer than most of the economists to picking this result. It had picked 1.8%. The average forecast rise among economists was 1.0%. Westpac economists were close, also, with a 1.6% pick.
The latest figures will presumably give the RBNZ a lot of comfort that its current monetary policy stance - including a whole heap of recent 50 point rises to the Official Cash Rate, taking it to 3.00 - is the right one to have been taking, with more still needed.
Thursday's GDP result therefore is a clear green light for another 50 point rise in the OCR at the next review on October 5.
As Kiwbank chief economist Jarrod Kerr said, the GDP outcome doesn't mean much for monetary policy.
"It simply confirms what we know," he said.
"The RBNZ is not yet done. They’ve made that unambiguously clear."
Kerr said the RBNZ is "on an inflation fighting path" with an end goal an inflation rate back at target. The RBNZ targets inflation between 1% and 3% with an explicit targeting of 2%. As the June quarter annual inflation stood at 7.3%. Figures for the September quarter are due out on October 18.
Getting inflation back on track requires domestic demand to ease back, restoring balance in the economy, Kerr said.
"Between weak confidence and deteriorating firm investment intentions, signs of slowing domestic demand are already emerging. But the RBNZ has signalled that further increases in the cash rate are needed.
"We expect the RBNZ to deliver its fifth successive 50bps hike at the monetary policy review in October. And we see the cash rate reaching 4% by the end of the year."
Economists' estimates varied widely due to the Covid-related volatility expected in the figures, but the average of the forecasts was for a 1.0% rise. The Reserve Bank's 1.8% forecast rise was top of the range.
The latest GDP figures show a clear bounce-back from the impact of Covid.
Statistics New Zealand said the services industries, which make up about two thirds of the economy, were the main contributor to the GDP increase, up 2.7%.
"The reopening of borders, easing of both domestic and international travel restrictions, and fewer domestic restrictions under the Orange traffic light setting supported growth in industries that had been most affected by the COVID-19 response measures," national accounts – industry and production senior manager Ruvani Ratnayake said.
"In the June 2022 quarter, households and international visitors spent more on transport, accommodation, eating out, and sports and recreational activities."
Overall household spending declined by 3.2%, driven by lower spending on goods such as used motor vehicles and audio-visual equipment, with a similar fall seen in retail trade activity. Specifically, spending on durable goods was down 8.6%, while non-durable goods spending was down 2.3%.
Key facts June 2022 quarter compared with the March 2022 quarter:
- GDP was up 1.7%
- expenditure on GDP rose 2.1%
- service industries rose 2.7%
- goods producing industries fell 3.8%
- primary industries rose 0.2%
- GDP per capita rose 1.7%
- real gross national disposable income rose 1.0%
- average annual GDP to June 2022 rose 1.0%
- current price expenditure on GDP rose 3.4%
ANZ economists provided this table highlighting the various sectoral changes ('Last' refers to June quarter, 'Prev' the March quarter)
Economic growth
Select chart tabs
156 Comments
RBNZ - will also be happy with the fall in household spending - which is what they are aiming to do with increasing interest rates. They will be happier if that reduction in household spending translates to lower inflation levels as businesses lower prices to attract customers.
If that occurs then we may get a soft landing for the economy - even if we have a hard landing for housing. Yes a 10% fall which is where we are currently at (ignoring Wellingtons 20%) - is a hard landing.
A 10% correction nationally (see post above) is hardly a hard-landing, given the level of capital appreciation since the GFC……
The very low level of mortgagee sales bears witness to that.
in any case, after a chilly winter 🥶 there are signs that the housing market is beginning to thaw.
Essentially, we’re looking at a short and shallow downswing - as FHBs and investors are now cottoning onto.
TTP
TTP won’t, because his comments aren’t based on statistics.
Here is the current housing correction compared to several major housing bubbles bursting in other countries
While 12% down doesn’t seem like a lot, it’s the rate of falls that people should take note of. Housing corrections often take years to fully play out
How is the affordability index that gets published by interest.co, I have not seen it for a long while. Since the increasing interest rates and the falling HPI maybe the index is level pegging
Block houses for sale this weekend, could be very interesting. I'm picking 2 out of 4 will sell on the day which really would be an outstanding result.
Probably doesn't look great, high rates certainly impact affordability today. Less important over the lifetime of the loan though - much better to have the smaller loan and hope for lower interest rates later. Worst case is the poor buggers buying a year ago at high prices and low rates, finding the payments have skyrocketed once the 1-2 year fixed rate expires. We never should have let it happen.
You predicted the "soft landing" for the New Zealand market would be similar to 2016/17/18. In that period there was a slowdown in price growth, and prices were relatively flat over the year. But instead what we are seeing is a correction where prices falling faster than any similar historical scenario, yet you continue to claim your "soft landing" prediction is coming to pass.
As I said, you aren't basing your comments on statistics or data. Its all spin and deception.
Took a year and a half for prices to bottom out about 10% down here in the GFC, and 4-5 years to exceed the previous peak. This looks much worse.
https://www.interest.co.nz/charts/real-estate/median-price-reinz
For any buyers who buy exceptionally well during this period then they will make an immediate gain. As we did when bought during GFC for 800k and within 12 months valued at 1.2m. Was mortgagee enforced sale so maybe that is the difference. There is now about 10 percent the volume of mortgagee sales compared to then 🤑
Sure, there'll be opportunities, especially when we reach the bottom. You must have found a good deal or made some kind of improvement (or both). We both know most investors can only make money by following the tide of the market rather than paddling their own way.
We still have very high employment at the moment, so I guess we won't see as many mortgagee sales unless the situation deteriorates. This is quite a different situation - we flew so high and interest rates are rising so fast we were bound to lose some altitude. The call now is when we can pull out of the death dive.
You, today, as usual couched amongst unverified weasel words and with no numbers backing you up:
Essentially, we’re looking at a short and shallow downswing
REINZ, yesterday:
These are the greatest six month drops in prices each has experienced since REINZ records began in 1992
So for a 3 month period nearly 3 months ago our economy grew a little bit. But in those 5 and 1/2 months there have been thousands of households effected by doubling mortgage interest rates. It usually takes those households three months post refix/rise to finally realise what is going on and start to curtail their spending. First warning is when you don't have enough left in your revolving credit to clear your credit cards for the month.
So for a 3 month period nearly 3 months ago our economy grew a little bit. But in those 5 and 1/2 months there have been thousands of households effected by doubling mortgage interest rates. It usually takes those households three months post refix/rise to finally realise what is going on and start to curtail their spending. First warning is when you don't have enough left in your revolving credit to clear your credit cards for the month.
If what you describe is representative of the attitudes and behavior many NZ h'holds, I think trouble lies ahead. But do you really believe it will take 3 months for these people to realize that they're living beyond their means?
People have been trained to live beyond their means, by the RBNZ.
That is what the "wealth effect" was all about. It was literally about making people feel wealthy because the paper value of their assets were up... and like Pavlov's dogs, they were trained to borrow beyond their means, and trained to spend beyond their means.
This has been a deliberate, long running strategy by the RBNZ. People are well trained, and well conditioned to it now. It will take a lot to break the psychology of it... some real tough times... before people will willingly live within their means again.
The RBNZ isn't smart enough to come up with this strategy.
All reserve banks work in cahoots, which is why they meet at Worm Hole or wherever, strategising how to transfer wealth to the rich.
They are not independent. We are the victims of them being conditioned like dogs.
Whenever I see Orr, I am reminded of a dog that knows it has done wrong, but just can't help itself.
On a nominal basis annual Jun. 22 GDPE grew 5.0643%.
Deflated annual GDPE for the year ending June 22 was $272,314m compared to Jun 21 at $272,830m
Worth noting that the actual increase in quarterly GDP was 0.7% - it was the seasonal adjustment that pushed it up to 1.7%. Whilst Stats were right to use a consistent seasonal adjustment methodology, they should have included a disclaimer given how depressed spending was in Q1 (i.e. it was non-seasonal!)
Yes, to be honest I under-estimated the seasonal variation - and didn't spot how big the boost in exports was. Basically, exports and seasonal variation offset the sharp drop in collapse in consumer spending that I thought would produce a lower figure. A bit of refinement to the model needed!
This is good news. It means interest rates will stay at least this high for the next couple of years. The housing price will continue to come down which makes them more affordable for first home buyers. Investing in property will be less attractive in future and more investment will go to productive industries. The economy will slowly correct itself and becomes healthier. Let's hope there won't be any interference from the vest interest group. I think NZ is on the right track at the moment.
Hmm, not too sure about that. It depends on where the house price is sitting after rates start to stay steady, and it also depends on people's confidence in property investment. Low interest can certainly push the housing price up but is not the only factor that causing it. We've had such a good run for our property market during last 6 years, mainly due to the great momentum we've had after vast foreign investment being injected in our property market before 2017 in my opinion. However, as we lost our momentum now, there will unlikely be another similar opportunity in next 10 years. I think it will be hard to restore the confidence.
by Audaxes | 16th Feb 22, 7:42pm
On our planet earth – as opposed to the very different planet that economists seem to be on – all markets are rationed. In rationed markets a simple rule applies: the short side principle. It says that whichever quantity of demand or supply is smaller (the ‘short side’) will be transacted (it is the only quantity that can be transacted). Meanwhile, the rest will remain unserved, and thus the short side wields power: the power to pick and choose with whom to do business. Examples abound. For instance, when applying for a job, there tend to be more applicants than jobs, resulting in a selection procedure that may involve a number of activities and demands that can only be described as being of a non-market nature (think about how Hollywood actresses are selected), but does not usually include the question: what is the lowest wage you are prepared to work for?
Thus the theoretical dream world of “market equilibrium” allows economists to avoid talking about the reality of pervasive rationing, and with it, power being exerted by the short side in every market. Thus the entire power dimension in our economic reality – how the short side, such as the producer hiring starlets for Hollywood films, can exploit his power of being able to pick and choose with whom to do business, by extracting ‘non-market benefits’ of all kinds. The pretense of ‘equilibrium’ not only keeps this real power dimension hidden. It also helps to deflect the public discourse onto the politically more convenient alleged role of ‘prices’, such as the price of money, the interest rate. The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.
However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky.
The banks thus occupy a pivotal role in the economy as they undertake the task of creating and allocating the new purchasing power that is added to the money supply and they decide what projects will get this newly created funding, and what projects will have to be abandoned due to a ‘lack of money’.
It is for this reason that we need the right type of banks that take the right decisions concerning the important question of how much money should be created, for what purpose and given into whose hands. These decisions will reshape the economic landscape within a short time period.
Moreover, it is for this reason that central banks have always monitored bank credit creation and allocation closely and most have intervened directly – if often secretly or ‘informally’ – in order to manage or control bank credit creation. Guidance of bank credit is in fact the only monetary policy tool with a strong track record of preventing asset bubbles and thus avoiding the subsequent banking crises. But credit guidance has always been undertaken in secrecy by central banks, since awareness of its existence and effectiveness gives away the truth that the official central banking narrative is smokescreen. Link Werner
Rolling of a 3 yr fixed rate loan at say 3% to BNZ current one at 5.69 = 2.69 increase in interest content which on a $500k loan is $1120 a month out of discretionery income so something is going to give especially with the large increases in fuel/energy/rates/insurance/food, that give will be big and the effects very ugly.
Whats the point, its water under the bridge and cannot be reversed now. Basically when National get in it is up to them to fix things and if they do a decent job then they will also get a second term. Kiwis have the memory of a Goldfish, the Labour disaster will be forgotten in a few years.
This majority government needs to have an enquiry for what they have done behind closed doors, so that the public may judge for themselves on what happened without their knowledge. Will they be just incompetent, or will they be exposed for their unprecedented overreach of power. Too many things need to be explained and we don't ever want to allow this level of reach or incompetence again.
Happy for the inquiry to begin with their moves on He Puia. I don't see any mention from Labour on their plan to Maorify everything in NZ in their 2020 election manifesto.
We were promised fairness and transparency but the opposite is being delivered by creating 2-tier public service and voting systems.
Just to be clear, I am not against indigenous rights. All I am saying is Labour has sneaked this bifurcation into every public reform without being clear and upfront about it.
By all the stable folk who rant about WEF. Always a good warning sign, as the ranting about WEF seemed to sweep across certain segments of folk at the same time. Like a lot of other rant topics, the stuff expressed by these segments of folk is very homogeneous, suggesting it's not the result of natural curiosity and independent inquiry.
The inquiry should focus on decision-making and the risk framework. Why buy such long duration (20y), only the Govt funds out there? What risk limits were in place, what were the loss tolerances? I have seen no mention of limits or risk reporting by the RBNZ anywhere.
What power: Quantifying "Quantitative Tightening" (QT): How Many Rate Hikes Is QT Equivalent To?
I show that a passive roll-off of $2.2 trillion over three years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times.
Fed says, 'Quantitative Tightening does Nothing (QE too)' [Ep. 288, Eurodollar University]
AA, tell me why the RBNZ do not switch from OCR hikes to QT? If it was worth the effort of stimulating the economy at the time, surely it should be unwound now it is no longer required?
It has to be because of the optics of crystalising the entire loss rather than bleeding out over the next 20 years. What other reason is there? Shameful.
New Zealand Debt Management is buying the QE bonds held by RBNZ over 5 years.
Open market operations (D3) - xls Tab: "LSAP bond sales"
Dissecting the 1.7% doesn't exactly paint a good news story. Private expenditure ground to a halt on an annual basis but was more than offset by a 10% increase in government spending; maybe I am being to sceptical here.
The overall highlights for me are net exports and gross capital formation being in the positive territory since 2019 despite the pandemic disruptions to businesses. Yet no government support in sight for high-value exporters.
Instead of actually fixing the broken systems, the government is spending on more bureaucrats and consultants to hold meetings and write meaningless reports. All this while, billions are being handed to those losing out from the broken system but isn't making them any better off either.
This s*itshow somehow gets picked up as a positive sign in the GDP stats.
We are under a government with no gumption who only wish to be in the limelight when they are trying to prove they have done something positive, and don't want to be held accountable for their failings. They will continue to pick selective stats, plan media releases etc in the way that suits them best, and not the NZ public. Even after they are voted out next election, they will need to be held accountable for the mess they have made, and the public wont buy the repeated "it's because of the war in Ukraine" or "COVID has put a lot of pressure on us that was outside our control"
no technical recession --- but look at wear the rises in expenditure are to give us this rise -- rents, mortgages, food, fuel --- all the extra spend is on simply staying alive and with a roof over your head -- So technically no -- but the reality and experience of the vast majority of Kiwis -- recession, hardship and reduced quality of life -
This is already shaping up to be a recession like no other before it -- with very little unemployment due to the huge lack of labour in this country, but yet despite anyone who wants to being able to find work -- the pain will be felt by millions
I agree re: OCR peak. I think that everything is pointing towards an OCR peak of well over 4.5%, very possibly 5%. If I had to take a bet, I would pick a 4.75% peak, staying at that level for the whole first part of 2023, and progressively decreasing to 4% by end of 2024.
Which predictions?
He predicted a GDP bounce in this article, but hard times ahead:
https://www.newshub.co.nz/home/money/2022/09/economist-cameron-bagrie-w…
I have a calibrated vernier caliper which can be used to accurately measure something to 0.01mm.
But it is possible to use them to measure something to whatever it needs to be.
There is also an art in selecting the right thing to measure to properly inform yourself on what is actually going on.
Seems relevant...
Hmm....If I combine this with yesterday's current account numbers, the conclusion comes to me, that Kiwi's are working ever harder to boost the bank accounts of overseas investors/owners of Kiwi assets!
Or....somebody is fiddling the stats because with tourism still a trickle compared with pre-pandemic, China not buying so much exports of us (See the trade deficit) and our real estate market has really slowed down, it is almost impossible to reach those GDP growth numbers.
It's very hard for me to believe anything I hear or read these days, especially if it comes out of a govt or their agency. Why do you think the RB guess was so close? Insider info? Don't get me wrong (no pun intended) I'm a fan of the good news as much as the next person, but we're still only half way through this. This pocket of air will need to sustain us for the next 12 months, so take a deep breath.
is nobody concerned that all the declines - manufacturing, construction etc are in productive sectors
and the very small number ( but huge in size and effect ) rises -- are in Food, Accommodation and Transport
Ie -- real inflation pressures on the basic essentials we all need -- Inflation is going nowhere and 4.25% is not going to be nearly enough to curb it
I’m gloomy.
The data out of both the US and NZ this week give the reserve banks no reason but to keep on elevating the OCR. Our “rock star economy” will blink first while the US pushes on with tightening. The record low NZD will prevent Orr from oncoupling from the Fed. We will have a US high OCR while our main source of wealth (housing) burns.
The worst case scenario is that this divergence goes on for a couple of quarters and our economy reveals its true colours and the lack of a meaningful productive arm to it will be exposed. The housing correction will become a crash, leaving us vulnerable.
Summer and tourism may save us or at least soften the shocks this year but I wonder if in fact that revenue will add to the masquerade by shoring up GDP a little longer, glossing over the construction sector which will be in trouble.
The latest figures will presumably give the RBNZ a lot of comfort that its current monetary policy stance - including a whole heap of recent 50 point rises to the Official Cash Rate, taking it to 3.00 - is right on track.
To me, that's a lot of nonsense! The GDP figures for April, May and June do absolutely not reflect the higher OCR which happened in April, May July and August. The effect of the "50 point rises to the Official Cash Rate, taking it to 3.00" will only truely be felt in 2023
Jun-2019 to Jun-2022 (3 years)
CPI increased 12.5% from 1032 to 1161
GDP increased 6.05% from 64412 to 68310
https://www.stats.govt.nz/large-datasets/csv-files-for-download/
no, nominal GDP is not inflation adjusted. Also that's less than 2% pa when you consider its compounding year on year. Oh and when you factor CPI increased more than double nominal your real GDP (inflation adjusted amount) becomes -6.45% growth over a 3 year period.
FYI Inflation is going to stick around for some time and GDP is going to slide all the way into recession.
But this 1.7% QQ is real GDP is it not? Nominal is 3.4%.
Or am I looking at the wrong data?
https://www.rbnz.govt.nz/statistics/series/economic-indicators/gross-do…
GDP bounce reflects largely catch up spending in accomodation transport and recreation whilst reductions in Mining Manufacturing construction and retail show a downward trend reflective of declining economic activity and confidence. The RBNZ and the Fed will increase interest rates probably in a pre recession climate that will result in a full blown recession as history records.I am relieved that we are not yet officially in recession.
In April they let the 438,000 unvaccinated back into society after being locked out for 4 months. Thats a lot of catch up hair and beauty appointments, pub and restaurant catchups with friends, and whatever else people had been barred from doing. And opened the borders to Australian tourists and returning Kiwi's. That gives the figures for the June quarter an artificial bump. Its really only from the current quarter onwards that anything "normal" can be presumed. Lets see what the real GDP growth figure is in the Sept quarter.
Real GDP growth was only 1.0% for year ending 30 Jun 22.
Excessive government spending on services has provided an illusion NZ has avoided a recession.
All that has happened is the NZ economy has been propped up by excessive borrowing by the NZ government. The problem will only get worse as interest rates continue to climb.
The reality is stagflation (no GDP growth, high inflation) is now raising its head.
NZ is living well beyond its means.
For the year ending 30 Jun 22 net capital inflows of $27 billion were needed to balance the external current account deficit (Exports - Imports). This sort of deficit is not sustainable for a country our our size.
The NZD is likely to continue its decline as overseas investors lose faith in NZ’s ability to grow its economy & pay back its debts.
GDP is great, have an earthquake GDP goes through the roof, borrow a few billion GDP goes up, increase the public sector GDP goes up. In these scenarios nothing extra is added for the cost, yet more money is injected into the demand side of the economy.
Funny how it is the increase in the non productive part of the economy, i.e. government and councils and a borrow and spend mentality is what will cause excess demand and price increases as they don't produce goods and services to the same level that they consume.
The productive sector can support the non productive sector, however there is a tipping point and once this is reached we now need to kill the productive sector to reduce inflation because the non productive sector works on a ratchet basis.
After all if we have imported inflation and we are no more productive then we have to tighten our belts and live within our means, a natural buffer to inflation, however if we borrow or increase our wages which means someone else has to tighten there belts than all is good, except we don't tighten our belts we borrow and then we wonder why we have inflation and we have to kill the productive sector as the non productive sector can't tighten there belts.
Please note I do not include frontline staff for the public facing roles, just the mail boxes that create reports and create work and grow there internal empires.
How much of the GDP increase is due to inflation?
My guess is all of it, looking at the categories that contribute most.
Is this a good thing, or bad. If it forces up interest rates and house prices decline to realistic levels, then I would say good.
But the GDP increase in itself is meaningless.
Whatever happened to the measure of "wellbeing".
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