Out of recession, struggling
The Kiwi economy expanded 0.2% in the March quarter, emerging from a technical recession, but remains fragile, according to Kiwibank economists.
“The economy remains very weak,” said Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, left to right).
Industry performance mixed
Only half of the 16 industries recorded gains, with significant declines in construction, manufacturing, and business services.
“That’s not good at all,” the Kiwibank economists said.
The shift in consumer spending was evident, with a decline in big-ticket imports and a rise in low-value imports. Households are cutting back on large purchases and luxury goods to meet the growing cost of essentials.
Investment and consumption challenges
Investment across the economy pulled back by 1.3%, with business investment alone contracting 0.5%.
“Households are clearly hurting,” the Kiwibank economists said.
Private household consumption increased 1.6%, but this should be read with caution due to disrupted seasonal patterns.
“The heavy hand of the RBNZ is still hurting households and businesses,” they said.
Monetary policy impact
Restrictive monetary policy is effectively lowering inflation but strangling growth. On a per capita basis, the economy declined 0.3% over the March quarter, marking the sixth consecutive quarterly decline.
Stat NZ’s “confirmation of a weak economy proves that restrictive monetary policy is working,” the economists said.
Rate cuts could come as early as November, pending inflation data.
Looking ahead
The rest of 2024 is expected to be challenging, with weak economic activity projected.
“The pulse for the Kiwi economy will only strengthen when interest rates are cut,” Kerr, Vergara, and Delgado said.
Growth is expected to pick up in 2025 with anticipated rate cuts.
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