If we’re out of recession now, why do we feel so broke?

Friday, 21 June 2024

Economy is out of recession but not booming.

The economy is inching out of recession, according to Stats NZ figures released on Thursday.

The latest gross domestic product (GDP) data showed the economy grew 0.2% in the three months to the end of March.

So are we out of the woods when it comes to the recession and will the pain on our pockets soon be over?

Firstly, what is GDP and what is a recession anyway?

Gross domestic product (GDP) is the official measure of economic growth.

The latest gross domestic product (GDP) data out on Thursday showed the economy grew 0.2% in the three months to the end of March, and the technical recession is over.

A recession is a period of economic decline measured by two quarters in a row of falling GDP.

Thursday’s GDP update followed two consecutive quarters where GDP dropped. That meant the country was back in a technical recession through the latter half of last year.

But if we’re out of recession now, why do I feel so broke?

Economists said straight GDP figures don’t tell us much about what’s going on in the wider economy, the better number is GDP per capita, which shows economic growth fell 2.4% in the last year.

Economists Stuff spoke to said the picture is much bigger than just GDP.

Craig Renney, chief economist for the New Zealand Council of Trade Unions, said that once you get under the hood of the 0.2% rise in GDP, there’s not a lot of good news.

GDP figures, generally speaking, mean nothing for workers in their day to day lives, he said.

The better number is GDP per capita. That’s the amount of growth in the economy adjusted to the size of the population, and it’s been falling for six consecutive quarters.

Why does it matter if GDP per capita is falling?

Economist Cameron Bagrie said Thursday’s GDP per capita figures show the economy shrank around 2.5% in the last 12 months.

If the economy isn’t growing year after year, that shows lack of productivity and hits our living standards, Bagrie said.

Economist Cameron Bagrie said it’s not just a cyclical downturn, there’s a structural adjustment going on and it’s impacting our standard of living.

So when will it end?

While Bagrie expects interest rates to improve for borrowers in 2025, he said what we’re feeling now is not just the pain associated with getting rid of inflation.

Other factors are at play, like poor maintenance and management of infrastructure, a degraded health system, an unaffordable housing market, dire local government finances… and it goes on. It’s not just a cyclical downturn, he said.

Economist Cameron Bagrie expects interest rates to improve for borrowers in 2025, bringing a bit of relief.

What can we do to turn things around?

Bagrie thinks a fundamental realignment is needed, but to make that happen politics needs to move more to the centre, to find common ground and bring everyone along for the shift.

He would put education at the top of the list for a shake up, to lift achievement and improve productivity.

Is there any good news?

Renney said the good news that we’re out of recession is meaningless because it’s not delivering employment and growth.

But, there are a couple of glimmers of light in Thursday’s update, with growth in dairy and tourism, he said.

But on the other side there are plenty of things that keep economists saying there is an underlying weakness in the economy, Renney said.