Finance Minister: Recession reinforces importance of ‘restoring fiscal discipline’

Thursday, 21 March 2024

The fall in GDP is steeper when adjusted for the country’s fast-rising population.

Confirmation that the economy has fallen back into recession has reinforced the importance of “restoring fiscal discipline to public spending” and driving more economic growth, Finance Minister Nicola Willis says.

New Zealand fell back into recession during the second half of last year, Stats NZ reported on Thursday morning.

The country’s gross domestic product (GDP), which is the most-quoted measure of economic activity, slipped 0.1% in the three months to the end of December, according to its estimates.

That followed a 0.3% fall during the previous quarter.

In New Zealand, a recession is commonly defined as two consecutive quarters of GDP decline.

The country was previously in recession between October, 2022, and March last year, before a single quarter of economic growth broke what would otherwise now have been confirmed as a 15-month downward streak.

Willis said the latest GDP figures showed the economy slowed earlier and at a faster rate than previously thought, blaming “a deep hangover from the big spending, big taxing period under the previous government”.

“It is concerning that we are in recession even despite our rapidly growing population,” she said.

Nicola Willis says NZ in same position as a household living beyond its means.

“The good news is that inflation is tracking in the right direction. Kiwis can also look forward to keeping more of their own money. This year’s Budget will deliver responsible fully-funded tax relief while ensuring new spending is prioritised towards essential front-line services,” she said.

The latest decline in GDP was not entirely unexpected.

ASB had forecast a 0.2% decline, while the Reserve Bank, Westpac and Kiwibank were also very close in forecasting GDP would come in essentially unchanged in the quarter.

GDP figures are adjusted for inflation but not population growth, meaning the fall in economic activity is steeper when looked at on a “per person” basis.

Stats NZ said that on a population-adjusted basis, GDP fell 0.7% in the December quarter.

The IMF forecast on Wednesday that there would be only muted economic growth in New Zealand this year, forecasting GDP would edge up 1.1% during the calendar year.

Westpac chief economist Kelly Eckhold said prior to the GDP update that the latest economic data — which includes lower-than-expected tax revenue reported by the Treasury for January — suggested the country was in the midst of a steep downturn.

The latest GDP figures appear to underline the challenges facing the Government as it seeks to make fiscal space for tax relief in the May Budget.

Less economic activity generally translates into less tax revenue, even without tax relief.

Commenting on the GDP decline, Stats NZ manager Ruvani Ratnayake said wholesale trade dropped the fastest in the December quarter, led by fewer orders from retailers for groceries, liquor and machinery.

Overall household spending grew by 0.5%, in part because of higher spending on domestic airfares and cars.