Heavy traffic up in potentially good GDP sign, but ‘real’ recession still expected

Don’t bank on GDP stats giving you the best steer on the economy’s strength - because the real recession is yet to arrive, some economists say.

A lift in ANZ’s Truckometer heavy traffic index could offer some hope for the economy after poor first-quarter GDP results.

But ANZ and independent economist Cameron Bagrie said a true recession was likely later this year, or in 2024.

They said freak events, volatile data and low unemployment do not make a real recession, despite two-quarters of headline GDP falls.

The latest ANZ Truckometer showed light traffic falling 0.9 per cent in May, but heavy traffic up 1.8 per cent.

“Heavy traffic - mostly trucks, but also buses - tends to provide a good steer on production GDP,” the bank said.

Light traffic, meaning motorbikes, cars and vans, generally indicated demand, especially consumers’ willingness to spend, ANZ said.

ANZ expected strong population growth to support traffic volumes and headline GDP, which is the big number Stats NZ published quarterly and some commentators viewed as the key indicator of recession.

Last week, New Zealanders learned the country’s GDP fell 0.1 per cent in the first quarter, after a 0.7 per cent contraction in the last quarter of 2022.

“While the economy is cooling, the heavy traffic data at least is hardly looking recessionary. We are forecasting the ‘real’ recession to be a feature of the second half of this year,” ANZ said today.

Sharon Zollner, ANZ chief economist, told the Herald that negative GDP growth was still expected in the third and fourth quarters this year.

She said last week’s recession news triggered much noise and commentary, but unusual labour shortages influenced the Q4 2022 results.

And Zollner said cyclones and other destructive, extreme weather events hampered growth in this year’s first quarter.

“With the unemployment rate still around a record low ... most economists wouldn’t say that’s a real recession.

“A recession is characterised by rising unemployment, for example,” Zollner added.

Bagrie said people needed to assess more data than GDP stats to get a good picture of the country’s economic direction.

“What we’ve seen so far is the appetiser on the main course,” he said today.

“It’s not a real recession when you’ve got unemployment at 3.5 per cent.”

Bagrie said inflation was proving to be a “sticky” adversary.

“The bottom line is breaking the back of inflation, you’re not going to get away with a lighthearted economic adjustment.”

Food prices increased 12.1 per cent in the year to May 2023 but there were some signs food price inflation may finally have peaked.

However, Bagrie said many central banks were struggling to tame inflation.

“I suspect more like ‘24 is where we see the real recession. The GDP figures are going to go in fits and starts.”

Central bank governors such as Adrian Orr face a formidable task tackling inflation. Photo / Mark Mitchell, Herald montage

Bagrie said people would need to assess the unemployment rate, real disposable income, weekly welfare benefit numbers and tax revenues.

He said company tax seemed to be “falling away quite aggressively” and that could lead to cutbacks in government spending later this year.

“The more persistent inflation is ... the more protracted the economic adjustment is going to be on the other side.”

ANZ said Truckometer data for the first two months of 2023 had been overall pretty flat.

It said that was typical of an economy “muddling along” as delayed impacts of monetary tightening, or higher interest rates, and falling export prices collided with population growth and fiscal stimulus.

John Weekes is online business editor. He has covered politics, crime, courts and consumer affairs. He rejoined the Herald in 2020, previously working at Stuff and News Regional, Australia.