Latest GDP figures cast 2024 in a dim light

Economy / analysis

The Reserve Bank finds itself stuck in the middle of still-high inflation and an economy that is buckling under far more quickly than had been believed

14th Dec 23, 2:38pm by David Hargreaves

Source: 123rf.com

Well, that's what you call a game changer. And not in a good way.

The September quarter GDP figures released by Statistics NZ on Thursday were a shock on two levels.

Firstly, obviously was the fact that the 0.3% shrinkage of the economy in the quarter was an enormous surprise - the Reserve Bank (RBNZ) had forecast the economy to GROW by 0.3%.

But, secondly, arguably the more pervasive thing to come out of it was the revisions by Stats NZ to earlier quarters. Put simply, these show that our economy was in a much more sickly state, much earlier, than we thought. The RBNZ's high interest rate 'medicine' has been having a rather more powerful effect than was being portrayed in our official figures.

And just to try to explain - in a very simplified way - why there were so many revisions, Stats NZ adds in a whole bunch of new information and updates its data in the September quarter each year. And it's these additions and revisions that have produced the revised figures.

It turns out we HAVE had a technical recession this year after all. Stats NZ revised (again) the March quarter figures, taking the figures down to -0.2%, from 0.0%. Coupled with the -0.6% figure for the December 2022 quarter this gives us the 'technical recession' denoted by two consecutive negative quarters.

With the latest quarter's GDP figures also in the negatives, it now - suddenly - means that three of the last four quarters have seen negative growth.

And the one shining exception to that - the June quarter - is nowhere near as shiny as was earlier thought. The June figures were first reported as 0.9%. Now Stats NZ have slashed that back to just 0.5%.

So, our last four quarters of economic activity read: -0.6%, -0.2%, +0.5% and -0.3%.

This is in an economy that has been pumped up by the addition through net inbound immigration of 129,000 people during the same period. Many more hands at the pump and the economy's still sinking.

With all these extra people around, no wonder then that arguably the most salient measure of the economy, the GDP per capita figure, saw a 0.9% contraction during the September quarter.

What happens now then? What about next year?

Expect to now see a clamour for lower interest rates. And soon.

Even before Thursday’s developments, wholesale interest rate markets were pricing in THREE full cuts to the Official Cash Rate (currently on 5.5%) by February of 2025. These same markets were giving a 40% chance of the first interest rate cut as early as MAY 2024.

And this was before, firstly, the US Fed gave its clearest signal yet it was done with hiking and then, secondly, our GDP figures were released. Wholesale interest rates tumbled after these two developments.

So, there will be pressure. There will be cries for Kiwis to get interest rate relief.

The RBNZ, however, is not currently forecasting any rate cuts till 2025.

But so much will depend on inflation and particularly the domestically sourced inflation. The worry is that this is going to remain 'sticky' - IE higher for longer than anybody wants.

The RBNZ is sure as hell not going to want to start reducing the OCR till it thinks it has inflation where it wants it.

The December quarter inflation figures to be released on January 24 next year loom large in the calendar. What those figures say will be crucial.

We now - suddenly - have an economy which is in far worse shape than was believed. But inflation is still a huge issue. The worst kind of squeeze.

Therefore, if our domestic-driven inflation remains at 'sticky' high levels the Reserve Bank will resist calls for lower rates any time soon and next year might be a much bumpier year for kiwis than we had hoped.

We now know the high interest rates the RBNZ has been giving us for the past two years have already been having a much bigger impact than anybody knew.

What if things do now start to get that much worse than anyone could have expected? And what is going to happen with us having just added 129,000 people to an economy grinding to a halt?

And what is the new Government's reaction to be? It has acquired an economy in much worse shape than it thought.

This is definitely starting to look like a good election to have lost.

The RBNZ looks set to have a rather more uncomfortable summer than it might have hoped.

Remember, its next OCR review is not till February 28, 2024.

Somehow, I think we may well be hearing from the RBNZ before then - perhaps with a speech hastily thrown in sometime in January.

The RBNZ won't want to be forced off its path of knocking inflation at all costs. But will other pressures force it to yield?

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81 Comments

by Yvil | 14th Dec 23, 2:58pm 1702519124

wholesale interest rate markets were pricing in THREE full cuts to the Official Cash Rate (currently on 5.5%) by February of next year

Do you mean by February 2025 ?

by David Hargreaves | 14th Dec 23, 3:05pm 1702519539

Indeed. Thank you very much. Fixed now.

by WellingtonInvestor | 15th Dec 23, 12:27am 1702553224

What did thy predict this time last year...because guessing it was wrong.

by Thinker | 14th Dec 23, 3:15pm 1702520131

Kerr and Toplis leading the charge. The other bank economists are so far off.

by ChrisOfNoFame | 14th Dec 23, 4:22pm 1702524147

Bank economists work their bank. Their banks pay them for their infomercials. Their infomercials increase bank profits.

Always seek alternative views from independent economists. (And take care - there are few truly independent economists. All have biases, and some are paid for them.)

by Audaxes | 15th Dec 23, 7:46am 1702579565

Not where I worked in London - they were stuck in a corner in the dealing room and the proprietary trading desks resented their budgeted costs being allocated to our bottom lines. I never read an economist report in 17 years, too busy trying to make money.

by ChrisOfNoFame | 15th Dec 23, 9:41am 1702586490

Worked the City too. No self-respecting UK economist would have the gall to publish the bank biased nonsense those in NZ banks do. They stick to very real deep dark analysis of economic trends. Loved working with them. The maths was fun and having virtually unlimited compute power with very rich data sets was awesome. Agreed, poorly paid for the City but very well-paid anywhere else.

by HouseMouse | 14th Dec 23, 5:51pm 1702529461

Toplis is the best bank economist by far, followed by Kerr.

by Makara | 15th Dec 23, 6:02pm 1702616538

Kerr doesn't appear to understand how loans are made (e.g. out of thin air) based on a recent “newsletter” I read on LinkedIn.

by Yvil | 14th Dec 23, 3:19pm 1702520381

So, unsurprisingly, higher interest rates in an environment full of debt is slowing people's spending, leading to lower GDP. Domestic inflation is still much higher than 1-3 %, so the RBNZ probably won't lower the OCR in February. If the RB lowers interest rates by May, the economy will be in a worse state and these lower rates will take time to "juice" the economy. I cannot see how 2024 will not be worse than 2023. Then again, I predicted at the beginning of this year, that "something will break by the end of 2023". I was wrong !

by nktokyo | 14th Dec 23, 3:20pm 1702520439

I think retail has broken, it just hasn't hit the news yet.

by malamah | 14th Dec 23, 3:54pm 1702522455

I think you're right - the Easter sales never ended.

by Sluggy | 14th Dec 23, 4:01pm 1702522914

My business is looking at about a 40% sales decrease this month from last year Dec. It just isn't firing at all. We sell to retail and construction.

by LASSET | 14th Dec 23, 4:43pm 1702525421

We’re 45% down on this point last December. This is the quietest I’ve seen it since the GFC.

by JimboJones | 14th Dec 23, 5:03pm 1702526636

Are you planning on increasing prices?

by HughJorgan | 14th Dec 23, 9:01pm 1702540913

This is the part that will be really interesting. Will construction prices go down, stay flat or keep rising?

by Pa1nter | 14th Dec 23, 9:26pm 1702542410

Suppliers are still increasing prices.

Can you find many points in history it's gone down.

Just find a really good independent builder and get them to do whatever it is you're hoping will get significantly cheaper.

by Rampart | 15th Dec 23, 7:38am 1702579121

We are down 16% financial YTD compared to this time last year. Unfortunately there is no light at the end of the tunnel. 2024 looks very quiet. Hold on.

by Pa1nter | 15th Dec 23, 7:43am 1702579401

Trading will continue, but many will have to make cuts and do some reinvention.

by ChrisOfNoFame | 15th Dec 23, 9:43am 1702586619

And many will be closing their doors just after Christmas. And the domino effect will gain traction and speed.

by Pa1nter | 15th Dec 23, 9:55am 1702587328

Christmas, or after EOFY, once they look at the books and determine whether or not there's a way out.

And then some of the ones that try to struggle on will also slowly fall away, assuming there's no economic upswing.

Won't be a great time for many.

by GetFeeling | 15th Dec 23, 7:01pm 1702620098

re ... "Christmas, or after EOFY, ..."

LOL. You don't know much about retail then.

by rumpole294 | 14th Dec 23, 6:26pm 1702531562

Correct its the lag effect.

by JimboJones | 14th Dec 23, 4:23pm 1702524226

"Domestic inflation is still much higher than 1-3 %" - are you sure? I guess we will find out in January.

The annual figure will still be higher than 3%, but that is useless anyway, who cares what happened 12 months ago. But if you annualise the quarter, I reckon there is a good chance we will be within the RBNZ's 1-3% target, or at least close. From memory it was about 4% annualised last quarter, and since then food and fuel has fallen in price.

by nktokyo | 14th Dec 23, 3:19pm 1702520390

Not surprised that Westpac is going to be proven dead wrong again.

by Te Kooti | 14th Dec 23, 8:28pm 1702538888

Maybe not, our newly elected coaltion just removed the employment target from the RBNZ's mandate. So now it's just inflation and that's still too high and may need another rate hike. Nothing else matters now.

by ChrisOfNoFame | 15th Dec 23, 9:45am 1702586703

Financial stability is still a remit. So NO. It's not just about inflation.

by The Black Swan | 14th Dec 23, 3:22pm 1702520564

The stagflation monster has arrived. I trust everyone had planned for this accordingly.

by Retired-Poppy | 14th Dec 23, 3:48pm 1702522103

Indeed! Now, the question is, what kind of recession will it be?

As the saying goes, "its a recession when your neighbour loses his job, its a depression when you lose yours"

by rumpole294 | 14th Dec 23, 6:28pm 1702531688

I smell deflation in the air.

by Pa1nter | 14th Dec 23, 9:41pm 1702543272

There aren't too many kinds of recessions, that's why it's a distinct term from an economic depression.

Don't let facts get in the way of a good saying though!

by Yvil | 14th Dec 23, 3:58pm 1702522736

How did you plan for stagflation Black Swan ?

by Retired-Poppy | 14th Dec 23, 4:19pm 1702523945

Troll alert!

by JimboJones | 14th Dec 23, 4:22pm 1702524177

I thought that was actually a very good question. Often the obvious plans don't actually work out, like when I pulled all my Kiwisaver into safety when Covid arrived.

by Retired-Poppy | 14th Dec 23, 4:25pm 1702524317

Yes, it's a good question but it depends on whos asking it.....

by Pa1nter | 14th Dec 23, 9:31pm 1702542665

Makes no sense at all.

Although he can't read your posts anyway because he grew tired of your opinions/winning persona, so it's all moot anyway.

by nktokyo | 14th Dec 23, 7:13pm 1702534401

Pot, meet kettle...

by Pa1nter | 14th Dec 23, 9:55pm 1702544125

It's not me, it's everyone else.

There, a bit of deflection, that'll put them off the scent.

by K.W. | 15th Dec 23, 3:59pm 1702609140

How did you plan for stagflation?

By keeping all my money in Australia. The Lucky Country never lets you down. NZ on the other hand, does so on a regular basis, usually coinciding with the end of a Labour Government.

by MikeM | 14th Dec 23, 3:25pm 1702520730

This forum is on the money yet again. No surprises here that the economy is on the slippery slope.

Still picking a June cut.

by JimboJones | 14th Dec 23, 4:24pm 1702524299

Yes, June at the latest, and that would be too late.

by MikeM | 14th Dec 23, 10:05pm 1702544752

I agree but unfortunately the RB is like a dog with a bone re inflation. They won't change course without a fight.

by Makara | 15th Dec 23, 6:26pm 1702618001

What to do when refixing the mortgage?

Floating rates are eye watering. 6mth rates at 7.35% ate still a rip off, with Bernard Hickey saying banks really should have been passing on 1% cut from wholesale rates by now…

by ex agent | 14th Dec 23, 3:31pm 1702521065

One does not have to be a rocket scientist to realise that many sectors are struggling. Retail, hospitality , motor vehicle sales and low house sale numbers for a start. Even Air NZ has recently forecast dropping revenue numbers. Why are the economists so wrong in their predictions. Like the Reserve Bank they have access to data we mere mortals never have access to. Maybe because they are on incomes that insulate them from the real world out there. Many New Zealanders are currently struggling to make ends meet. Many New Zealand businesses are struggling to survive. They know that things are not great for New Zealand fiscally. Why cannot the economists see that with all the data and information they are privy to. In saying all this I am not saying the economists are overpaid. I am just saying they can probably pay all their bills a lot easier than a lot of other people around them.

by J.C. | 14th Dec 23, 3:43pm 1702521837

Why are the economists so wrong in their predictions. Like the Reserve Bank they have access to data we mere mortals never have access to. Maybe because they are on incomes that insulate them from the real world out there.

Many reasons. One of the main reasons is that they have to conform to consensus views that please vested interests. And remember the nail that sticks out gets hammered down.

Richard Werner was one of the first economists to be asked into the WEF flock back in its earliest days. His criticisms of the ECB and economic POV saw him asked to leave. But Werner is not your typical 'career guy.' He wasn't prepared to temper his views for a paycheck; the prestige; the networking; and the cocktail parties.

by BeeBop | 14th Dec 23, 8:20pm 1702538435

Because they use past data to predict the future without adding INSIGHTS towards the future.

Not enough human behaviour factored in.

by Pa1nter | 14th Dec 23, 9:33pm 1702542805

That, and even the brightest minds on earth struggle to time markets.

Economists and the RBNZ know this environment leads to carnage, probably better than most. But, like much of life, it's steady as she goes, till it's not.

by ChrisOfNoFame | 14th Dec 23, 4:29pm 1702524562

Can I fix that for you?

"Why are the BANK economists so wrong in their predictions."

Bank economists are able to shout from the rooftops and MSM echoes their every word.

Meanwhile, the rest of us have far quieter voices. ;-)

by rumpole294 | 14th Dec 23, 6:30pm 1702531827

Empty vessles make the most noise.

by Pa1nter | 14th Dec 23, 9:34pm 1702542870

If anyone can out-do public economists in their accuracy, their voices are valuable, and get heard.

by ChrisOfNoFame | 14th Dec 23, 4:33pm 1702524803

Joining Jfoe, me and others at last, David?

Yes I think you're going to be right. Those loving words from the RBNZ's MPC will come much earlier and something said just after Christmas makes sense.

Let's not forget that the RBNZ can drop the OCR whenever they like. They're not bound to a published schedule. And an official cut in the OCR is already being priced in so the announcement may have little immediate effect.

And of course, our banks (scoundrels, liars and thieves for the most part) love rocket and feather pricing so it'll be months before many see any significant change in carded rates.

So the questions now are:

1. How many cuts?

2. And by how much?

My guess is regular, but small. So 4 x 0.25?

IMNSHO that'll probably be too little, too late. Dominos falling and friction (and fear) will see further deterioration.

I'd be going for a big one, 0.5% or even 0.75%, as early as the data allows (which is very close now), with words to the effect, "Now we're going to do nothing else while monitoring the situation". I.e. no hints of further cuts while letting the market do its thing. (A single big cut forces the banks to move fast rather than allowing them to prevaricate and dither.)

In the meantime the RBNZ must get DTIs in and be ready to ratchet down ratios. And government, if they insist on restoring interest deductibility as fast as they say (slower would be better), must work with other parties to get a CGT in - ideally one that includes the family home but doesn't apply when the family home is being switched for another family home.

by JimboJones | 14th Dec 23, 5:02pm 1702526569

"it'll be months before many see any significant change in carded rates" - I think the opposite: if the market starts pricing in OCR cuts (which they must be pricing in much more with todays news), wholesale rates will come down, and so will mortgage rates. Even if we don't see OCR cuts until June next year, I get the feeling we will see some pretty big decreases in mortgage rates well before then, maybe even January.

by ChrisOfNoFame | 15th Dec 23, 9:51am 1702587107

Hope you're right.

But banks have a history in this regard. They keep the carded rates high so people on rollovers and FHB don't get wise. The wise will be negotiating and switching banks at the drop of hat if their bank hasn't sharpened their pencil. The wise will get the rates reflected by markets - everyone else get a pathetic 'discount' on the carded rate for not causing any trouble. Any not negotiating and/or switching banks will get fleeced. Same old, same old.

by macca | 15th Dec 23, 8:43am 1702583025

There would be more support for CGT if govt fixed NZs poverty inducing current superannuation savings system. People buy property to provide for their retirement because our pension system is so bad (and the state pension so low). Follow Canada, Australia, USA and revert back to the former EET (Exempt, Exempt, Taxed) system we previously had. Then a sensible CGT could fly if it's locked in on a bi-partisan political basis.

by Makara | 15th Dec 23, 6:38pm 1702618719

Whats “rocket” and “feather” pricing??

Also - what is the real cost to the banks based on their whole loan book? At present OCR is 5.5%, and they don't even pay that on normal savings accounts. My bank, TSB, pays a paltry 4.2% for example.

Then what proportion of their lending is actually wholesale from international markets, that they need to add a direct margin to, in order to meet costs. 10%, 15% of their loan book? These are constantly used to justify carded rates when these are only a small proportion of their overall capital as I understand it.

Would be interested in a response from those who have a good handle on actual figures for ASB, ANZ, BNZ and Westpac.

by GetFeeling | 15th Dec 23, 6:58pm 1702619906

When prices of a product (in this case loans) go up (rocket) way before the supplier (the banks) actually experience higher input prices (i.e. what cost they borrow at, e.g interest rates on term deposits). And when their input costs fall they are slow to bring down their prices (the feather). Banks make a fortune by doing this.

https://en.wikipedia.org/wiki/Asymmetric_price_transmission

by Makara | 15th Dec 23, 7:28pm 1702621686

Ahh…makes sense.

by HouseMouse | 14th Dec 23, 5:48pm 1702529319

Why should anyone be surprised at this weakness?

by rumpole294 | 14th Dec 23, 6:33pm 1702532012

RBNZ - Orr would be surpised if Friday followed thursday or night followed day.

by ChrisOfNoFame | 15th Dec 23, 9:53am 1702587231

Unfair. What Orr says publicly is likely to be different to what is discussed with the MPC. Jawboning is common practice among central bankers.

by DTRH | 14th Dec 23, 6:38pm 1702532308

Many on here have been warning of a downturn for sometime, New Zealand is all in on property which is obviously way over valued people should expect a major haircut like kojak on property investments.Anyone over leveraged will be in a huge financial hole, hopefully housing market will find a bottom around 2016 price level.

by Sam B | 14th Dec 23, 7:22pm 1702534969

Nah, recession is good news for property prices. The bigger the recession the better, in fact. A few rate cuts and we’ll be back to massive monthly price rises.

by HughJorgan | 14th Dec 23, 9:06pm 1702541191

Would you place a bet on that?

Interest rates don’t outweigh unemployment.

by Sam B | 15th Dec 23, 7:00am 1702576858

I *would* place a bet on that. Not a big one though ;)

by Pa1nter | 14th Dec 23, 9:37pm 1702543033

Endless talk about investors and what average incomes can afford, but never any mention of how badly average incomes get hurt in economic downturns.

You really are the people's poet.

by DTRH | 15th Dec 23, 8:39am 1702582782

The downturn is with us, due to emergency rates pushing up house price and debt levels causing inflation the pendulum swung back other way, rates will stay around this level as central banks will think twice before lowing to silly levels again. This is just the way it is Pa1nter the people who will get stung the most are the ones with large debt who overpaid for property which is already down 20% from highs in many areas at the same time inflation lifted 15% and NZD lost around 15% of its value.

by Pa1nter | 15th Dec 23, 9:32am 1702585977

The downturn is with us, due to emergency rates pushing up house price and debt levels causing inflation the pendulum swung back other way

No. That happened, alongside other things.

In these sorts of environments, those already with less fare worse than those experiencing asset depreciation. The average folk you speak of so often.

by WellingtonInvestor | 15th Dec 23, 12:29am 1702553362

New Zealand has had one of the largest property price crashes in the world from the peak prices. In the US property prices have increased, and their interest rates are even higher than NZs. But their economy seems to have recovered a lot better than NZs. Likewise Australias property prices are doing a lot better than NZs

by Pa1nter | 15th Dec 23, 7:10am 1702577400

NZ also had one of the highest spikes.

And other economies had worse economic performance over the period, so more to recover.

by Roheir | 14th Dec 23, 11:32pm 1702549931

Great article. Would appreciate more considered perspective from the population

by Audaxes | 15th Dec 23, 7:44am 1702579444

The September quarter GDP figures released by Statistics NZ on Thursday were a shock on two levels.

Firstly, obviously was the fact that the 0.3% shrinkage of the economy in the quarter was an enormous surprise - the Reserve Bank (RBNZ) had forecast the economy to GROW by 0.3%.

Really?

by interesting1234 | 15th Dec 23, 8:11am 1702581079

Stats NZ: 0.0% revised to -0.3%, and a whopping near 50% drop from 0.9% to 0.5%. This is unacceptable and accountability is needed. The country needs to know that we had a recession and be querying why the media and government have been smiling and waving the whole time knowing this. Unacceptable.

Many of us knew they were fudging the numbers to make it all look like we were 'just' avoiding a recession, likely for fear of the behavioural changes that would come from the overall announcement.

It won't be fun, jobs and homes will be lost, but inflation hurts us all irrespective of wealth or creed and needs to be targeted. We know Orr doesn't have a spine, but maybe he can prove he has b*lls in the next 6months.

by Peter M | 15th Dec 23, 8:30am 1702582233

The writing was on the wall. When Stats NZ reported about the trade deficits the last 6 months, it was based upon both imports and exports being down by big margins compared with 2022. So for me it comes at 'no surprise'.

Worldwide demand is collapsing and New Zealand has nothing to show for. We are a low value commodity producer and not like the Swiss, Swedes, Danes, Koreans and Dutch, who's economies are producing stuff the rest of the world is prepared to pay premium prices for.

by K.W. | 15th Dec 23, 4:09pm 1702609760

Mate, there was an election on and the Govt lackeys were doing the jobs they were hired to do - covering up Labour's cockups. Those extra 15,000 bureaucrats hired in the last 3 years know which side their bread is buttered and went all out to tilt the election in their favour. It was not the only data that was fabricated, manipulated, massaged, hidden, unreleased, buried ..... still lots more to come out.

by linklater01 | 15th Dec 23, 9:13am 1702584834

I'm long retired so don't have any business insights, but my younger son is a GM in the truck business and they started to see a fall off in new orders many months ago.

by ChrisOfNoFame | 15th Dec 23, 9:59am 1702587544

I saw it too. What people didn't see is that freight for future uses went down while freight for immediate consumer actually rose slightly. And further disguised by some vehicles making routes without a full load. Logistics provides many insights. The Truck'o'meter could be way better.

by Pa1nter | 15th Dec 23, 10:11am 1702588299

Agreed, there's a handful of leading indicators for certain sectors that are fairly accurate forerunners to overall economic decline.

Freight, oil, timber prices, etc.

by Bully Hayes | 15th Dec 23, 11:31am 1702593092

Unfortunately for many cartage firms - the order they placed for new tractor/trailer units 12months ago or more are now starting to be delivered at long last - only to find the work is quite there for them...

Many are being left unpainted/unbranded so they can put up for sale...

by Palmtree08 | 15th Dec 23, 9:50am 1702587007

I remember a few years back these GDP figures meant the economy shrank. Now days they're interpreted as "negative growth". Perhaps the change in terminology is designed to keep us focused on the wonders of growth, while glossing over the fact activity shrank? That way we can psychologicaly fool ourselves even shrinking is growing? I'm guessing that's the point?

by K.W. | 15th Dec 23, 3:49pm 1702608599

What if things do now start to get that much worse than anyone could have expected?

We abandon NZ for Australia.

Except the Labour/Green/TPM voters who will all be on the dole and finally will understand what happens when all the productive taxpayers flee the country.

by HellToupee | 15th Dec 23, 10:36pm 1702632987

Productive people have already been abandoning NZ for Australia, turns out low wage economy not a great strategy to retain them or generate tax.