The data this week that will show whether NZ is in a recession

Friday, 9 September 2022

New Zealand will need to have achieved 0.3% growth in the three months to the end of June to match the average growth rate across the OECD.

Stats NZ will reveal on Thursday whether New Zealand has fallen into a recession, when it releases GDP figures for the three months to the end of June.

Most analysts think even a shallow recession is unlikely, although some believe it could be a close run thing.

The economy contracted by 0.2% in the three months to the end of March, Stats NZ has previously estimated.

As recessions tend by convention to be defined in New Zealand as two consecutive quarterly declines, a further GDP drop in the second quarter would qualify.

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That is even though the country is experiencing near record-low unemployment.

The chances of a recession next year may hinge on whether international tourists return, ANZ believes.

BNZ forecasts Stats NZ will report solid quarter-on-quarter GDP growth of 1.5%, while the Reserve Bank predicted in its August monetary policy statement that growth would come in even stronger at 1.8%.

But ANZ is more downbeat, and on Friday revised down its growth forecast for the quarter to 0.4%, from its previous estimate of 1% growth.

“Leading indicators going into the second-quarter GDP release have been softer than expected on balance, indicating an economy struggling to get resource to grow, with Covid disruption only adding to that,” ANZ economist Miles Workman said.

ASB moved its forecast in the opposite direction on the same day, revising up its second-quarter growth forecast from 0.8% to 1.2%.

Westpac is now plumping for 1.6% growth, but warns uncertainty over the number is particularly large this quarter.

New Zealand is one of the last developed countries to report its second-quarter GDP numbers, and will need to achieve 0.3% growth to match the average growth rate across the OECD.

The United States and Britain saw modest 0.1% declines for the quarter.

ANZ, which has been relatively hawkish on the outlook for interest rates, doesn’t believe that the Reserve Bank would be swayed from its current pace of monetary policy tightening even if Stats NZ does conclude New Zealand’s economy shrank in the first half of the year.

“While some indicators suggest the economy was in technical recession, given lingering wage and inflation pressures, the Reserve Bank will need to keep on hiking even if this turns out to be the case,” Workman said.

If that is correct, whether New Zealand is in recession may be more of interest to politicians seeking ammunition on the management of the economy than to financial markets.

The International Monetary Fund has described the two-quarter test for defining recessions as “a good rule of thumb”, but says there are drawbacks and that it may be preferable to use a broader set of economic indicators, rather than just GDP, to make a call.

In the US, also by convention, the non-profit National Bureau of Economic Research decides whether a recession has occurred, based on a subjective assessment of a wide range of economic indicators.

A meaningful recession with declining GDP and rising unemployment in New Zealand next year might be less of a surprise than a technical recession this year.

BNZ is forecasting a “modest correction” with zero growth between October and March and a 0.3% decline in GDP in the three months to the end of June next year.

The weaker outlook reflects an assumption that higher interest rates will take a growing toll on consumer spending, and concerns over the impact of an energy crisis during the European winter and weak growth in China.

Most analysts forecast the economy will avoid a recession next year, but say a lot depends on whether foreign tourists and students return to New Zealand in anything like pre-Covid numbers.

ANZ’s forecasts have the economy escaping a recession next year, but the bank notes that is only because it has pencilled-in a strong recovery in net exports.

“From a domestic, gross national expenditure, perspective, we do expect a contraction over the first half of 2023,” the bank says.

“If international tourism and education don’t pick up as quickly as we’re hoping, the whole economy could easily slip into recession.”