Growth remains weak
Kiwibank reported that while the Kiwi economy has managed to crawl out of recession with 0.2% growth in the March quarter, underlying details reveal significant weaknesses and a slow recovery.
Mixed signals from central banks
Last week, a trifecta of central banks delivered varied signals.
The Reserve Bank of Australia (RBA) maintained its cash rate, emphasising the risk of higher rates due to inflation.
Meanwhile, the Swiss National Bank (SNB) executed its second rate cut, bringing the cash rate to 1.25%, with concerns over currency strength and stable inflation.
The Bank of England (BoE) kept its rate at 5.25%, adopting a dovish stance with a "finely balanced" decision not to cut rates, influenced by a drop to 2% inflation largely due to base effects from last year's energy spike.
Kiwi economy’s modest growth
At home, the focus was on Stats NZ’s GDP numbers, revealing that the Kiwi economy managed to crawl out of recession with modest 0.2% growth over the March quarter.
“It might be a positive print, but the details were weak, very weak,” said Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right).
Only half of the 16 industries recorded gains, with significant declines in construction, manufacturing, and business services.
Weak investment and declining per capita output
The economy remains fragile with a 1.3% pullback in investment and a 0.3% decline in per capita output over the March quarter, marking the sixth consecutive quarter of decline.
Compared to the previous year, output per person is down 2.4%, reminiscent of levels seen during the Global Financial Crisis.
Future of monetary policy
Restrictive monetary policy from the Reserve Bank of New Zealand (RBNZ) continued to squeeze demand, aiming to lower inflation over time.
“The next move for rates is down, but the timing is difficult to gauge,” the Kiwibank economists said.
They forecast inflation to fall within the RBNZ’s 1%-3% target band by the September quarter, potentially opening the door for a rate cut as early as November.
Read the Kiwibank commentary in full here.
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