The bank still expects NZ to slip into a shallow recession this year
New Zealand appears to have managed to dodge a technical recession over the summer period – but only by the narrowest of margins, a Kiwibank economist has said ahead of the release of NZ’s first economic report card for 2023 on Thursday.
In Kiwibank’s latest publication, Jarrod Kerr (pictured above), chief economist, said the New Zealand-owned bank expected the 0.6% contraction in economic activity in the final quarter of 2022 to be followed by a flat GDP print in Q1. Kiwibank’s forecast was slightly weaker than the Reserve Bank’s prediction of a 0.3% rise in its May MPS.
“Given the significant uncertainty over the quarter, with significant weather disruptions, we could easily see a print coming in well above, or well below, our 0.0% pick. What's important is the outlook. And the outlook is soft at best,” Kerr said.
“Key measures of economic activity paint a mixed picture,” Kerr said. “To be fair, it was a mixed quarter. The RBNZ’s ongoing battle with inflation has seen an aggressive rise in interest rates. And domestic demand is beginning to respond. But complicating Q1 was not only the severe weather events, but also the ensuing rebuild. We could also be in for some payback from Q4’s big decline. There’s lots to consider.
The Kiwibank economist also pointed out the increasing evidence of a slowing economy.
“Retail trade, manufacturing, and primary output all came out weak over the quarter,” Kerr said. “But according to Stats NZ, building activity picked up. Construction activity had been slowing with a housing market in retreat for the past year. The cyclone rebuild, however, has given the sector a second wind.”
Kiwibank still expected New Zealand to slip into a shallow recession this year.
“The RBNZ’s sheer determination to constrain demand cannot be discounted,” Kerr said. “However, the rebuild and surge in net migration questions the magnitude of the contraction and the starting point.”
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