GDP falls in latest quarter, New Zealand in technical recession

New Zealand is in a technical recession after the economy shrank two quarters in a row.

Gross Domestic Product (GDP) fell by 0.1 percent in the December 2023 quarter, official data found. This is the fourth quarter in the last five where the economy has contracted.

The figures from Stats NZ was just out of line with most economists' predictions which expected little to no growth. However, ASB predicted a small fall.

GDP measures the total value of all goods and services produced in a country.

In the three months to September 2023, it was worse than expected, with the economy shrinking 0.3 percent. Another negative result now means New Zealand is technically in recession.

This is despite record migration levels last year, along with stronger tourism numbers.

On an annual basis, GDP rose 0.6 percent in 2023 when compared with 2022.

"Wholesale trade was the largest downwards driver this quarter, led by falls in grocery and liquor wholesaling; and machinery and equipment wholesaling," Stats NZ national accounts industry and production senior manager Ruvani Ratnayake said.

Retail trade activity also fell, driven by furniture, electrical, hardware retailing and food and beverage services.

Stats NZ said eight out of 16 industries saw increased activity, including rental, hiring, real estate, public administration, safety and defence.

Expenditure on GDP was flat at zero percent in the December 2023 quarter, following a 0.4 percent fall in the September 2023 quarter. 

Gross national disposable income also fell, down 1.4 percent.

Surge in companies looking at redundancies - EMA

The Employers and Manufacturer's Association (EMA) said it wasn't a surprise the economy entered a recession.

EMA Head of Advocacy Alan McDonald said the economy is struggling because inflationary pressures, high interest rates and low consumer confidence are combining to hit many businesses hard.

"Not only are sales falling but business costs and bad debts are rising, and this is forcing many to look at where they can reduce their outgoings," McDonald said.

He said the EMA has seen a "surge" in requests from members looking for support around redundancy and restructuring.

"Calls to our AdviceLine have increased by 70 percent year-on-year and our support team is receiving an average of thirty calls a week from businesses looking for help around restructuring and redundancy," McDonald said.

"Inevitably this will be reflected in the unemployment rate, which we expect to rise over the next year as businesses continue to respond to the economic slowdown."

New Zealand's latest unemployment rate was four percent.

ASB said Thursday's number is another weak outturn by any stretch of the imagination.

It said since the economy peaked in September 2022, output has shrunk by a cumulative 0.7 percent or so.

"As we've consistently emphasised, this slowdown has taken place at a time when population growth into New Zealand continues to prove exceptionally strong by historical standards," ASB economist Nathaniel Keall said.

"Headline GDP growth – as unimpressive as it is – actually flatters the picture and masks the underlying weakness."

He said the drivers of this quarter's downturn were pretty familiar. The manufacturing industry has now shrunk for seven of the last eight quarters and the goods-producing sectors also fell again. However, Keall said a slightly warmer housing market or population growth could be behind a recovery in construction activity, up around 0.1 percent, off the back of last quarter's 0.5 percent fall.

Meanwhile, services activity rose 0.3 percent over the quarter, however, Keall said that masked larger swings under the hood. Wholesale trade activity fell 1.8 percent and retail trades fell 0.9 percent.

Keall said economists and policymakers need to think seriously about how to boost productivity and get the New Zealand economy out of the hole it is in, or "we will all be the poorer for it".

What this means for interest rates

ASB said the decrease in GDP tilts the balance in favour of OCR cuts coming sooner than the mid-2025 timeframe flagged in the February Monetary Policy Statement.

"We continue to expect OCR cuts from the second half of 2024. We caution that the weak growth over the past eighteen months has still coincided with relatively high inflation and the supply side capacity of the economy will remain hugely material in how quickly inflation will fall from here."