All five major banks now forecasting economy shrank in December quarter

Friday, 10 March 2023

Thursday’s figures will show if there is a chance NZ has entered a recession earlier than expected.

All five major banks are now forecasting GDP figures due to be released by Stats NZ on Thursday will show the economy shrank in the final three months of last year.

If they are correct, the economy could already be almost six months into a recession that the Reserve Bank had instead pencilled in for this year.

The Reserve Bank estimated last month that quarterly GDP grew 0.7% in the December quarter, down from very strong growth of 2% the previous quarter.

But ANZ and Kiwibank are both forecasting Stats NZ will instead report that economic activity declined by about 0.3%, while ASB is forecasting a 0.5% drop.

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BNZ and Westpac forecast a 0.2% decline, after BNZ reversed its estimate of a small pick-up on Monday.

ANZ senior economist Miles Workman said that with international tourist numbers still down about 32% on their pre-pandemic levels in December and house prices in retreat, it “simply wouldn’t pass the sniff test” to see strong seasonally-adjusted economic activity during the quarter.

Kiwibank senior economist Mary Jo Vergara said a range of economic indicators from estimates of building work to manufacturing sales and retail trade figures pointed to weak activity.

The Reserve Bank’s projections show the economy entering a shallow recession in January.

However, as a recession is defined in New Zealand as two consecutive quarters of GDP decline, that couldn’t be confirmed before Stats NZ reports the June quarter GDP figures on September 21, less than four weeks out from the election.

If, on the other hand, Stats NZ reports that GDP did decline in the December quarter, a recession could be confirmed much earlier, on June 15.

BNZ had been forecasting GDP would grow 0.3% in the December-quarter, before it revised its forecast.

ASB economist Nathaniel Keall expected Cyclone Gabrielle would have a “highly uneven” impact on the economy but that the “post-Gabrielle recovery” would boost growth in the short term as repairs got underway and consumers replace damaged possessions.