NZ recession probably over - economists

But the economy could slip back, they say

NZ recession probably over - economists

Data this week will likely show that New Zealand has technically moved out of recession, though it may not feel like it for households continuing to grapple with increased living costs.

GDP data for the June quarter will be released by Stats NZ on Thursday, after the previous two quarters saw the economy slipping into a technical recession.

Economists are expecting New Zealand to be out of recession this time, as the economy grows in the June quarter by around 0.6%, Stuff reported.

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According to Kiwibank economists, that growth would be driven “payback” for the capacity-constrained, cyclone-affected growth over summer, with some industries experiencing more increases than the others – some due to migration, others from the end of weather disruption.

“Capacity constraints largely underpinned the Kiwi economy’s rather lacklustre performance over the December 2022 and March 2023 quarters,” they said. “However, weakness evident across retail sales and construction is a clear sign of softening domestic demand amid tough financial conditions. And it is weakness we expect to persist. It’s monetary policy at work.”

Nat Keall, ASB economist, too, was predicting a 0.6% lift in the economy, which, he said, would leave the economy slightly smaller than it was before the technical recession started.

“There has been enormous variance in how the different sectors of the economy have performed post-COVID, and we expect that to continue,” Keall said. “The relatively meagre pickup in activity we anticipate in the manufacturing sector will probably be cold comfort after five consecutive quarters of contraction.

“Finally – and probably most importantly – whopper population growth has played a key role in helping prop-up output. It’s likely that on a per capita basis, the economy still shrank over the quarter. So, while we may no longer be in recession, it could still feel like one for a lot of households and businesses.”

The services sector looked particularly strong, he said, as well as the arts and recreation component.

“Things are still looking a bit more subdued for primary industries, manufacturing, things like that,” Keall said.

Mike Jones, chief economist at BNZ, also expects the economy to “poke its head out of recession.”

“The point for many will be that it doesn’t feel like we’ve emerged from recession,” Jones said. “When you adjust for all the extra people in the country, we’re still going backwards.”

He said this week’s increase would likely overstate the growth in the economy.

“In reality, we’re bumping along the bottom and are likely to be in that environment until the middle of next year,” Jones said.

Keall said the economy could potentially slip back into recession but anyhow, it was likely that the economy would be relatively flat.

“Whether it ends up being -0.5% or +0.5% for the next quarter, it’s going to be pretty anaemic,” he said. “We’ve still got those headwinds mounting overseas... and obviously households still haven’t felt the full impact of the lift in mortgage rates we’ve seen over the past 18 months or so.”

“That’s the big question,” Jones said. “Not so much the intricacies of this particular number but whether the lift can be sustained. Our view is that it won’t, and our view is that the economy will re-enter a recession in the third or fourth quarter.”

Kiwibank economists said they would be looking for revisions to earlier data, Stuff reported.

“Last quarter’s 0.1% decline in output may prove to just be a rounding error. It won’t take a lot for it to be revised higher, which would technically erase the 'technical recession’.”

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