Editorial: Recession has arrived but economic signals are not all bad

The pain at the supermarket shelves is real for many as New Zealand has dipped into recession but the outlook is not so bad. Photo / Frank Augstein, AP, File

Opinion

EDITORIAL

New Zealand has entered a recession, at least according to the popular definition of two negative GDP quarters.

We’re not officially in recession. There is no such thing as an official recession in this country.

The US has official recessions - but not based on technical, two-quarter, definitions.

The US declares official recessions by committee, using a broader classical definition that considers matters such as unemployment and consumer spending.

By US standards it’s unlikely that the statistically marginal 0.1 per cent decline for the March quarter would meet the bar for an official recession - especially with unemployment still low and business failures below historically normal levels.

Finance Minister Grant Robertson has a point, the primary sector took a weather-related hit in the first quarter that probably made the difference.

But let’s not sugar-coat what this economy feels like for many Kiwis. It is tough and getting tougher. There may in fact be a more considerable downturn coming later this year.

GDP is a backward-looking statistic and this week has delivered a whole bunch of new numbers for economists to consider. It was a mixed bag; not all of it is as bad as the headlines would suggest.

Food price inflation was still painfully high at 12.1 per cent for the year to the end of May. But that was down on the annual rate to April, at 12.5 per cent.

The 0.3 per cent monthly rise was the smallest lift for more than a year and had economists tipping food price inflation has finally peaked.

On a monthly basis, fruit and vegetable prices actually fell - a promising sign that the worst inflationary impacts of the summer storms is behind us.

New Zealand’s worryingly large current account deficit shrank from 8.9 per cent of GDP to 8.5 per cent.

That still means the nation is living beyond its means by a whopping $33 billion but the direction of travel is crucial with powerful rating agencies now far less likely to put our economy in the bad basket.

There are signs the housing market woes may be easing with some regions showing price improvements - or at least lower rates of decline.

Perhaps more importantly - given the extent that perception is a reality in real estate - the confidence in the housing market is lifting according to an ASB survey on Tuesday.

Immigration data showed that the crazy surge, as borders opened late last year, has passed.

We’re still gaining new migrants but at a more manageable rate. Meanwhile, tourism continues to rebound.

There are reasons to be optimistic that New Zealand is moving through this tough economic time in an orderly fashion.

It doesn’t feel great for most people and it is probably not going to for several months.

That might be a problem for the Government heading into an election at what might be the lowest ebb of the economic cycle.

But people tend to look forward. If Kiwis can see a clear path back to economic stability then confidence will improve.