This due to a slowdown in the primary sector
New Zealand’s economy appeared to have expanded further in the September 2023 quarter, albeit with a slowdown in momentum due to various economic pressures, according to Infometrics.
Sustained job and population growth have bolstered overall expansion, but the impact of high inflation and elevated interest rates has tempered the economy’s strength, with mounting pressures on the primary sector also starting to affect provincial economies.
Infometrics’ September 2023 Quarterly Economic Monitor showed provisional economic growth of 0.5% per annum in the September quarter, a deceleration from earlier in the year, which has contributed to annual average growth easing to 1.7% pa.
“Jobs growth remains solid, and migration is adding additional demand into the economy,” said Brad Olsen (pictured above), Infometrics principal economist.
Recent population data from Stats NZ showed that major urban centers have reaped the most benefits from recent population growth.
“Alongside strong population growth in areas like Queenstown as tourism activity has rebounded,” Olsen said. “Stronger population growth has supported jobs growth, with areas including Marlborough, Auckland, and the West Coast seeing employment rise around 5%pa in the September 2023 quarter.”
Despite higher spending activity in dollar terms compared to a year ago, it is still being eroded by excessive inflation, leading to increasing constraints as rising interest rates take effect.
“Card spending is now growing at a slower pace than annual inflation, with households having to be much more careful with their money, as budgets are squeezed and bang for buck continues to erode,” Olsen said. “With inflation remaining high and mortgage rates still rising, household budgets will remain under considerable pressure into 2024.”
Spending data indicated a growing sense of restraint, particularly in the upper North Island and lower South Island.
“Other challenges remain, too, with falling construction intentions, rising unemployment, falling job ads, and increasing pressure on the primary sector,” Olsen said.
“Stronger trends in international dairy auctions have prompted a slight lift in the expected dairy pay-out, but this season is still expected to return $1.8bn less than the season before. Slaughter prices for mutton, lamb, and beef have also fallen in recent months too, some by considerable amounts. This lower revenue, coupled with on-farm costs rising 7.3%pa so far in 2023, is adding extensive pressure to provincial economies.”
Olsen noted that these factors are likely to dampen economic momentum, setting the stage for a more subdued economic outlook.
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