Figures to be released in the coming week will show the economy has continued to grow quite strongly. The Reserve Bank's attempts to 'engineer' a recession are still very much in the future yet

It will be a case of 'hold your horses - not yet' when the GDP figures for the September quarter are released this week.

The Reserve Bank's surprisingly frank concession that is is actually seeking to engineer a recession has got everybody expecting that this is going to happen tomorrow. It isn't. If the RBNZ is right with its current economic forecasts, we will find out that we are in recession in about a year from now. Seriously.

Remember, the 'technical' description of a recession is two consecutive quarters of negative GDP growth. As things stand the first quarter next year in which we see the economy shrink is likely to be the June quarter, followed by the September quarter - the results of which will be known in December 2023. 

So, as I've said before the RBNZ's engineered economic downturn is going to be much more of a story for 2024.

In the meantime, in the here and now, it's to be expected that the extremely strong labour market, the return of tourism, and the for-now still strong building sector will keep things buzzing on pretty well over summer and well into next year.

So, the September GDP figures to be released by Statistics New Zealand on Thursday, December 15 should show reasonable strength once again.

The RBNZ's picking 0.8% GDP growth for the quarter. Bank economists who have the benefit of having seen somewhat later data are picking somewhat higher than that. I reckon we may well see something over 1.0%

We can get some clues ahead of time how the GDP figure is going to look through the release of what the economists like to call 'partial indicators'.

Retail trade volumes held up very well in the quarter. with a 0.4% rise, while sales were up a bumper 2.5% - but remember the latter figure would be blown up by rising prices in the face of a 7.2% annual inflation rate.  

And while the business confidence surveys are showing us that particularly the residential building sector is very pessimistic about the immediate future, the building work put in place figures, for the September quarter were again very strong, with a 3.8% quarterly rise, well ahead of economists' forecasts. 

Stats NZ's quarterly manufacturing survey showed volumes up 3.1% in the September quarter after a 4.8% decline in the June quarter. After adjusting for price changes, wholesale trade rose about 1.5%.

One thing I'm interested to see - although these September quarter figures will be a little 'early' for that - is how the impact of tourists in the country for the first time since early 2020 plays out. The indications so far are that the bounce-back of tourism has been stronger than expected, which has ramifications both for the revenues of companies - and the impact on an already beyond-strained labour market capacity.

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.

I'm sure given the considerable publicity that the RBNZ has received for its efforts, seemingly to talk us into one of those 'R' things that there will be some perplexed expressions when the figures come out this week.

But remember, GDP figures are very much a reflection of what has happened - not what is going to happen. And of course our quarterly figures don't generally appear till the next quarter is almost finished, so, they are in some respects very much 'historic'.

What the economists therefore will be poring over this week is not what happened in the September on a 'headline' basis - but what they can glean looking through the cracks about what might be ahead. 

Well, in other words, expect a lot of people looking under the hood at signs that the NZ Inc engine's about to stop running on all cylinders.

The RBNZ has of course cranked the Official Cash Rate up now to 4.25% (from just 0.25% as at the start of October 2021) and this, to keep using the car analogy, is expected to apply some serious handbraking to our economy. And of course the RBNZ is currently projecting that the OCR may go as high as 5.5% next year. 

How quickly the anticipated slowdown occurs will be most interesting to see. And it is possible it won't happen as quickly as the RBNZ is hoping for if employment levels stay as incredibly strong as they are at the moment, and if wage increases keep coming.

ASB economist Nat Keall is seeing NZ growth "slowing to a crawl over 2023 and early 2024".

"Given that sluggish pace, the possibility that overall economic activity contracts and the NZ economy enters recession, can’t be ruled out.

"In a sense this is a bit of an academic distinction – an economy growing at a snail’s pace will feel very similar to an economy that’s contracting a little. And even a weakly positive headline growth rate will conceal real pockets of weakness within individual GDP components – conditions for the household sector will very likely be recessionary whatever that headline GDP figure is."

He cautions that we shouldn't expect interest rates to start coming down just because growth is slowing.

"Getting inflation back into the target band is still priority number one for the RBNZ, and its comments at the time of the November MPS [Monetary Policy Statement] suggests it won’t be shy about helping push growth into negative territory if that’s what it takes.

"The RBNZ will want to see clear evidence that slowing growth is pushing employment back below its maximum sustainable level and inflation back to target before it pivots to an easing bias.

"We think it will be mid-2023 before the Bank will be comfortable with where OCR settings are sitting to pause the tightening cycle, and mid-2024 before its prepared to start bringing the OCR down.

"The actual timing of when OCR hikes will be delivered is uncertain, but the higher the OCR moves relative to circa 3% neutral levels, the earlier potential OCR cuts could come into consideration. But remember growth is only one part of the equation – the labour market is so tight at the moment due to a shortage of workers rather than a skyrocketing demand for labour. Changes in the size and composition of the labour force and working age population will be just as important over the coming years."