We’re coming out of a 'recession’ – but the economy is certainly not flying

Backwards, forwards or sideways. Which way would it be for GDP?

Next week (Thursday, September 21) Statistics NZ will release GDP (gross domestic product) data for the June quarter.

It was the last significant piece of economic data released ahead of the Oct. 14 election. September quarter consumer price index inflation figures will be released after the October 17 election.

The June quarter GDP figures will be very 'old’ data, but that doesn’t stop it from being a useful political football in the heat of the election campaign.

This is especially because of how we are positioned in relation to recent past GDP releases. The December quarter 2022 GDP result showed 'negative’ growth of -0.7%. This was followed by another negative result of -0.1% in the March quarter.

It is generally accepted in the economic world that two consecutive quarters preceded by a minus sign constitute a 'technical’ recession. So, we are 'technically’ in a recession at the margins of possibility. In a real sense, all this is meaningless. But there’s no doubt, in an emotional sense, the 'R’ word has some powerful drama.

Between the pandemic and the lingering effects of other events such as the weather problems earlier this year, much of the economic data produced in recent times is what economists like to call 'noise’ – a disruption and partly because the data is sometimes hard to measure. That is, revisions to the data will be a 'thing’ for some time.

As I said earlier, this is mentioned because it is entirely possible that Statistics NZ may revise the previous quarter’s results in the release of the June quarter GDP figures. This is worth bearing in mind because if the March quarter figures are revised to any extent in UP, it will wipe out the initial GDP reading of -0.1% and by extension, we will not have two quarters of negative GDP growth in a row. – So no 'recession’!

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But in any case, let’s assume that there will be negative GDP figures for the December 2022 and March 2023 quarters. That means the June quarter figure will see the 'end’ of the recession – or a continuation.

So it’s all fun and games to go back to those politicians and wonder what’s in it for the electoral mill when next week we find out our economy has gone backwards for three quarters in a row. Opposition politicians have to do that neat trick of pretending to be stunned when they are actually happy!

Indeed, opposition MPs seem more likely to be disappointed. That’s because economists are picking that there will be some sort of reasonable bounce-back in the figures for that June quarter. Note that the March quarter was affected by events such as the Auckland anniversary weekend floods and Hurricane Gabriel and disruptions based on those events.

The Reserve Bank has said GDP will grow by 0.5% in the June quarter. At the time of writing, I only had one of the leading bank economists’ polls in front of me, but the general consensus among economists seems to be that the second economy’s growth is pegged at 0.4% to 0.8%. Leg.

The various economic indicators leading up to the release of the June quarter GDP figures were certainly a mixed bag, but there were enough positive surprises and evidence of resilience to suggest the GDP reading will be positive.

For a look at some of the indicators that have come out in recent weeks for the June quarter, see Commodities (Commodities). Terms of trade rose 0.4%, which is a much stronger result than expected. Total size Manufacturing sales increased by 2.9%%, following a 1.8% decline in the March 2023 quarter. When adjusted for seasonal effects, total trade value fell 1.2% ($458 million) in the June 2023 quarter, following a 0.5% ($207 million) decline in the March 2023 quarter. The Extent of building works constructed fell in the June quarter. Retail sales fell in the June quarter. This is the third decline in a row.

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Time for an economist’s view…

ANZ senior economist Miles Workman, who projects GDP growth of 0.4% in the June quarter, said economic momentum was clearly slowing on the back of a 525 basis point hike in the official cash rate (OCR) from late 2021 by the Reserve Bank. and taking the OCR to its current 5.50%.

„A weak underbelly is particularly evident in the per capita data, which is expected to record another quarterly contraction (-0.2% quarter-on-quarter), with population growth of 0.6% q/q exceeding headline activity. The widening gap between headline and per capita growth in annual growth , shows that New Zealand has returned to the pre-pandemic strategy of population growth, which is improving growth in GDP,” Workman said.

While he expects gross domestic product to expand „a little bit” in the June quarter, the pace remains weak and is unlikely to change anytime soon, he said.

„Looking forward, until it is clear that the RBNZ domestic CPI inflation is under control, the big picture for the economy is unlikely to be rosy. For that to happen, economic activity will have to be in line with one another. More or other nasty shocks will have to hit the global front, and the RBNZ will have to do a lot of work for them. It would be good to see some stability in milk prices in the next fortnight, but China is the front-runner and sector in this regard, a risk to our export sector.”

Well, back to me, assuming the economy doesn’t contract in the June quarter, what’s ahead?

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The RBNZ is forecasting a return to negative GDP growth in the current quarter and the economy contracting by -0.3% in the September quarter and then by -0.1% in the December 2023 quarter. There will be one of those 'technical’ setbacks again – albeit a very mild one. If indeed the RBNZ proves to be at least close to its forecast, it will be the famous and ever-elusive 'soft landing’ for our economy.

However, it is clear that the situation is very fluid. A major GFC-style event can change things quickly. It is fair to say that the possibility/probability of some significant global explosion is very real.

But on the other hand, if we look purely internally, Our housing market is picking up againAnd our Inbound migration is back in full flow. Those two intertwined factors could boost the economy even more than expected in the coming months. But what it might do to inflation is another matter entirely…

Select the chart tabs

GDP Nominal Quarterly $mil

Year-on-year per capita growth %

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