Economy inches out of recession, recording 0.2% growth
Thursday, 20 June 2024
The economy grew 0.2% in the three months to the end of March, taking the country out of the shallow recession experienced during the second half of last year.
However, the growth was patchy and economic activity has now fallen for 18 months on a “per capita” basis, which takes into account population growth, and is now down 2.4% over the year on that measure.
By convention in New Zealand, a recession is defined as two consecutive quarterly declines in GDP, which is the main measure of economic activity.
The 0.2% GDP rise reported by Stats NZ on Thursday followed a 0.3% decline in the three months to the end of September, and a 0.1% drop in the final quarter of last year.
The Reserve Bank and ANZ had forecast 0.2% growth, while Westpac had been the most pessimistic, predicting a further 0.2% fall in GDP which would have meant the country had spent nine months in recession.
ASB, BNZ and Kiwibank had sat in the middle of the forecasts.
Despite the overall marginal increase in economic activity, seven of the 16 sectors of the economy tracked by Stats NZ experienced declines in the March quarter, including construction, business services and manufacturing, Stats NZ reported.
The utilities sector, including the electricity generation industry, was the fastest growing.
The figures do not represent a return to good times.
ANZ senior economist Miles Workman said prior to Stats NZ’s announcement that even with its forecast for 0.2% growth the economy would be “bouncing along the bottom”.
ASB had said any growth would lead to some positive headlines about the end of a recession, but those would be “cold comfort to those facing weak demand amid New Zealand’s cost of living crisis and heightened economic uncertainty”.
GDP per capita fell 0.3% during the quarter, its sixth consecutive quarterly drop in population-adjusted terms.
That slide has prompted the Reserve Bank and the Treasury to become more vocal in recent months about the country’s perceived poor track record achieving productivity growth.
Governor Adrian Orr warned last month that low productivity growth was “weighing on the potential economic growth of the country”.
“We are operating with a vehicle that can move slower, on average, without generating inflation,” he said.
An unexpected increase in GDP would normally be associated with a reduced likelihood of interest-rate cuts.
But that equation appears to have become more complicated in the mind of the Reserve Bank as it had previously started taking weaker-than-expected economic activity as evidence that it may have overestimated the growth potential of the economy.
The GDP release comes in the wake of a consumer confidence survey released by Westpac on Tuesday that reported consumer confidence dropping back to near historic lows.
It also follows a speech by Reserve Bank chief economist Paul Conway on Wednesday that BNZ research head Stephen Toplis dubbed “a touch dovish”.
Conway said there were risks inflation could prove move “sticky” than expected in the short term but could fall faster than expected in the medium term.
Recent research by the Reserve Bank suggested with more surety that sluggishness in the economy activity would translate into lower inflation.