Economist expects further slowdown in second half
Gross domestic product fell 0.1% in the March quarter, meaning the country is technically in recession.
Kiwibank senior economist Mary Jo Vergara (pictured above right) said the fall was not a surprise, the bank having forecast flat growth over the quarter.
An official measure of economic activity, GDP provides a snapshot of the value added to the economy over a quarterly or annual basis.
In an announcement on Thursday morning, Statistics New Zealand confirmed that GDP fell 0.1% in the March 2023 quarter compared to the December 2022 quarter. On an annual basis, GDP increased by 2.9%.
It marks a smaller fall than the December 2022 quarter, when GDP fell by 0.7% (adjusted figure) and follows growth of 2% and 1.7% over the September and June 2022 quarters.
As it marks two consecutive quarters of negative growth, the latest GDP figure puts the country officially in recession. It follows a more significant 12.2% quarterly GDP fall over the June 2020 quarter, marking a recession following a slump in activity amid COVID-19 restrictions.
Statistics New Zealand economic and environmental insights general manager Jason Attewell (pictured above left) said that just over half of the industries surveyed declined over the quarter, and that the business services (down 3.5%) was the biggest driver of the quarterly decline.
“Management consulting, advertising, scientific, and engineering design services drove the fall in business services,” Attewell said.
Along with business services, bigger quarterly declines were seen in transport, postal and warehousing (-2.2%), education and training (-1.9%), manufacturing (-1.1%) and retail trade and accommodation (-1%).
Ahead of the official figures, Westpac’s preliminary forecast put economic growth slightly further into negative territory at -0.2%.
Similarly, Kiwibank forecast economic growth to be flat over the March quarter. The Reserve Bank’s ongoing fight with inflation saw the official cash rate rise for a 12th time, to which it said domestic demand is responding as intended. The bank expected severe weather events and the associated rebuild to also have an impact.
Speaking to NZ Adviser about the 0.1% fall, Mary Jo Vergara said that due to these various impacts, the quarterly result was challenging to pick.
Kiwibank is still expecting a “significant slowdown” in the economy in the second half of this year, she said.
“Given how deep the previous two economic contractions have been, we could see a lift in activity on a quarterly basis in June,” Vergara said.
“But it is our forecast that we’ll see a significant slowing over the second half of the year.”
Vergara said that the speed of monetary policy tightening could not be discounted as there were clear signs of demand starting to slow. The bank expects this picture to continue in the second half, she said.
Household consumption of non-durables fell 3.4% over the March quarter, showing households are tightening their belts.
“Our base case is still that the recession will be a short-lived and shallow one, book-ended by some flat growth heading into 2024,” Vergara said.
The recent surge in net migration, latest Statistics NZ data showing a net inflow of 72,000 people over the year to April, and the construction rebuild associated with recent weather events, could raise GDP growth over the coming quarters.
But that’s also coming at a time when the economy is also fairly soft, meaning contribution to overall demand is unlikely to be as significant.
