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New Prime Minister Christopher Luxon has expressed fears that his new Government has inherited a recession.
This week we will get new data figures that will give some insight as to how that risk is playing out. Gross Domestic Product data for the third quarter (to September 30) lands at10.45 on Thursday.
Economists expect that it will show the economy is still growing - just.
But they warn that for many people conditions will feel recessionary. Once New Zealand’s strong population growth is factored in (net migration gain of 118,000 in the year to September) it is likely we’ve seen the economy shrink on a per capita basis.
Kiwibank is picking just 0.2 per cent GDP growth for the quarter.
Chief economist Jarrod Kerr notes that, regardless of whether we technically land in recession or not, the next few months will be very subdued.
“For us, it’s a bit of a change in direction from our initial estimate of a 0.2 per cent contraction,” he says. “But let’s be clear. It has nothing to do with a stronger than expected economy, and everything to do with our record-breaking net migration.”
“In the year alone we’ve imported a net 120,000 migrants. Helping grow our population by 2.7 per cent in the year end September 2023. Our larger population is supporting higher output and higher demand. But take that away, and we would have very likely been embarking on the first quarter of our second recession of the year.”
ANZ’s Miles Workman strikes a similar tone. ANZ is picking 0.3 per cent growth for the quarter - in line with the RBNZ’s latest forecast.
Workman notes that it is a very different story if we look at per capita GDP.
“Growth in the population of 0.6 per cent (q/q) means our expectation for headline GDP growth of 0.3 per cent implies a per capita contraction is on the cards,” he said.
“Looking forward, while the economy may avoid another technical recession at the headline level, the per-capita cut of these data probably won’t be so lucky.”
Subtract surging migration from the picture and the underlying state of the economy would be very soft indeed, Workman said.
“And while migration is making it easier for firms to find the workers they need, the RBNZ’s assessment is that net migration is a small net positive for inflation, suggesting the more migration-driven growth we get, perhaps the more pain the RBNZ will need to inflict at a per-capita level, whether that’s through more hikes or just holding rates where they are for longer.”
ASB economists are picking 0.2 per cent growth for the quarter. but also noted we were facing a “per capita recession”.
“New Zealand looks likely to have dodged a 2023 recession, but strong population growth conceals flagging per-capita activity,” economist Nathaniel Keall said.
“Like roast turkey on Christmas Day with all the cousins, we’ve got a bigger chook but there is less to go around.”
Looking out, Kiwibank still sees the threat of a topline recession as very real.
“While we love seeing how the Kiwi economy performed, we have to acknowledge this data for what it is. It’s old data,” Kerr said.
“The outlook is what’s most important and it’s soft at best. Policy settings have been aggressively tightened. And according to the latest Reserve Bank’s forecasts, will remain so until mid-2025. With potential for rates to go even higher. Meanwhile, the global backdrop continues to weaken. The Reserve Bank may no longer predict the Kiwi economy to slip into a recession, but we do.”
Firms are having to pay up to secure staff in a struggle to fill vacant positions, Kiwibank chief economist Jarrod Kerr says.
Economists have long forecast that the most likely period for dipping into recession is the fourth (December quarter) that we are now in and the first quarter of 2024.
The Reserve Bank hedged its bets in the last set Monetary Policy Statement - picking growth will dip to zero in the fourth quarter and just 0.1 per cent in the first quarter next year.
That is is well within the margin of error for a recession and reminder that, even as inflation fears start to recede, we aren’t out of the woods yet.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
