Government and Opposition trade barbs as GDP drops 0.2%

Thursday, 19 September 2024

The Government and Opposition have traded barbs after Stats NZ reported economic activity fell 0.2% in the three months to the end of June.

Labour finance spokesperson Barbara Edmonds said the figures confirmed the economy had failed to grow since the coalition government took office.

“The results speak for themselves. Nicola Willis’ hit list is now higher unemployment, low GDP, and record high migration as Kiwis look to escape the effects of her poor financial decisions,” she said in an attack on the Finance Minister.

Labour deputy leader Carmel Sepuloni said she believed New Zealanders would have expected the economy to improve “because that was certainly the promise that was put to them before the election”.

Willis responded that the figures showed the economy had been suffering the “after-effects of a long cost of living crisis”, which she has blamed in part on the former government’s spending.

Brighter days were ahead, she said.

“The New Zealand economy is resilient and it will recover. Forward-looking data shows the work we are doing to rebuild the economy is already having an impact and green shoots of recovery are coming through.”

She acknowledged business investment was declining “in some industries”.

“That is why we are working at pace to give businesses more confidence. It’s why, for example, we are progressing a fast-track consenting regime. New Zealand needs big developments right now.”

Green Party co-leader Chlöe Swarbrick said the data added to the case for major tax reforms.

“Luxon’s Government has chosen to double down on trickle down tax cuts which disproportionately benefit the wealthiest by siphoning resources from those who need it and the creaking infrastructure all of us rely on,” she said.

The June-quarter decline means the country would be in recession if there was another drop in GDP in the current quarter.

However, Stats NZ has ‘cancelled’ the recession that was previously believed to have taken place during the second half of last year, after revising its estimate of GDP in the December quarter slightly from a $37 million decline to a $26m rise.

The updated estimates mean the country was last known to be in recession in the six months to March last year.

A more meaningful statistic for consumers and businesses may be that economic activity remained $500m lower last quarter than it was in real terms in the three months to September 2022, despite strong population growth over the period.

GDP per person has fallen every quarter since then, and fell 2.7% in the year to the end of June.

Council of Trade Unions economist Craig Renney said the concern was there didn’t seem to be a driver of future growth.

Stats NZ senior manager Ruvani Ratnayake said retail and wholesale trade had been in “steady decline” since 2022.

Stats NZ also noted that — unlike New Zealand — Australia, China, the United States, Canada, Japan and the EU and OECD economies as a whole all experienced economic growth in the June quarter.

There were some bright spots in the latest numbers, however, with activity rising in seven of the 16 sectors of the economy that Stats NZ tracks, including manufacturing which bounced back 1.9% during the quarter.

“This was the largest rise in manufacturing activity since the December 2021 quarter,” Ratnayake said.

Household spending also increased 0.4%, driven by spending on items such as fruit and vegetables and services.

Bank economists had been expecting economic activity to decline in the June quarter, but surveys suggest businesses and consumers believe the worst may soon be over as nominal interest rates start to decline both here and overseas.

The Reserve Bank delivered a confidence boost in August by cutting the official cash rate by 0.25%, while the US Federal Reserve lifted sentiment globally overnight by slashing its interest rates by 0.5%.

A set-back closing New Zealand’s large current account deficit in the June quarter and ongoing concerns that credit ratings agencies may be spooked by the Government’s prolonged fiscal deficit remain potential spanners in the works to a recovery, however.

ANZ noted the drop in GDP was smaller than the 0.5% decline the Reserve Bank had been expecting and more in line with its own forecast of a 0.1% drop.

It didn’t expect the data to be a game-changer for monetary policy.

“Despite an upward surprise for the Reserve Bank, overall economic momentum remains very weak, consistent with ongoing disinflation and gradual OCR cuts,” it said.

The Employers and Manufacturers Association downplayed the apparent up-tick in manufacturing activity, noting a BNZ survey indicated the sector had been contracting for 18 consecutive months.

'There’s no doubt that current conditions remain challenging,' spokesperson Alan McDonald said.