New Zealand’s high net migration gains mean that, on a per capita basis, GDP fell 0.3% for the quarter and 2.4% for the year to March.
The country has gone backwards on a per capita basis for six consecutive quarters now.
This represented a per capita decline of 4.3% from its peak in the third quarter of 2022, said BNZ senior economist Doug Steel.
He noted that was now larger than the 4.2% from peak to trough during the GFC in 2008/09.
While we may be out of technical recession, there seems little hope of the per capita trend reversing in a hurry, and that may better reflect the economic mood on the ground.
“The current decline is likely not done yet,” Steel said.
Certainly, expectations are that the rest of the year will see little or no growth.
“Unfortunately, the outlook for the rest of the year is for more of the same,” said KiwiBank chief economist Jarrod Kerr.
“Forward-looking indicators suggest that the June quarter will likely be a soft one for economic activity.”
Beyond that, the economy would struggle to eke out further growth this year, he said.
“Policy settings are still aggressively tight, and a soft global backdrop doesn’t help either. The pulse for the Kiwi economy will only strengthen when interest rates are cut.”
That highlights another reason why being in or out of recession means less in this economic cycle. The current downturn has been largely engineered with high interest rates to suppress demands and get inflation back down below 3%.
The timing of rate cuts is what is concerning most businesses and mortgage holders.
On that front, the latest GDP data was unlikely to shift the Reserve Bank’s (RBNZ) outlook - which currently doesn’t see scope for a rate cut until September 2025.
KiwiBank is more optimistic.
“That turning point is on the horizon,” Kerr said.
“We’re beginning to see more central banks start to relax interest rates. And we don’t think the RBNZ will be far behind from when they are able to do the same. We’re pencilling in November. And expect to see growth pick up into 2025 as rate cuts deliver a needed breath of life into the economy. For now, however, it’s about holding on until 2025.”
Other economists expect a longer wait but the consensus seems to be falling on expectations for the first cut in February.
For the RBNZ, today’s GDP print wasn’t a game-changer, said ASB economist Kim Mundy.
“After a prolonged period where demand exceeded supply, demand must remain below the economy’s productive capacity for some time to rebalance the economy and help bring inflation sustainably back to target,” she said.
“We continue to expect OCR cuts from early 2025. By then, we expect the RBNZ will have enough evidence that a weaker economic backdrop (and a looser labour market) will flow through to inflation settling sustainably around the midpoint of the 1-3% inflation target range.”
ANZ’s Workman also said he was comfortable sticking with his February call for rate cuts, as did BNZ’s Steel.
“We remain of the view that the first rate cut occurs in February,” Steel said.
“But see the balance of risks tilted to earlier rather than later as timely economic indicators deteriorate. Today’s GDP report shows an economy growing below potential such that the output gap is widening. This will put downward pressure on core inflation over time.”
By industry sector, the bright spots included utilities like electricity and gas output as well as a small seasonal lift for the primary sector. There was also a slight lift in consumer expenditure.
But construction took a big hit, down 3.1% for the quarter. Manufacturing production fell 1.2% in the quarter. The services sector also saw a small decline, its first in a year.
Professional, scientific, technical, admin, and support services fell 1.1%, while public administration and safety declined 1.2% (driven by central Government), ASB’s Mundy said.
