In the seven quarters leading to the second quarter of 2024, per capita GDP fell by 4.6%. Expectations loom over the Q3 national accounts due on Thursday, with indicators pointing to a possible fifth contraction in eight quarters for the nation’s economy.
From insights shared at Interest.co.nz by David Hargreaves, New Zealand's economy faces possible stagnation, coupled with a 0.2% GDP decrease projected by the Reserve Bank for Q3. Larger declines of 0.4% have been predicted by financial institutions ANZ and Westpac, emphasizing concerns over a deepening recession.
Partial economic indicators reflect a distinct pattern of decline. Q3 saw a 0.1% decline in retail sales volumes when adjusted seasonally, with a stark 2.5% year-on-year drop compared to Q3 2023. Moreover, building activity presents no respite, as construction outputs fell by 3.2%, marked by a pronounced 3.5% drop in residential building activities—the lowest in four years.
Manufacturing, too, contracted by 1.2% when adjusted for seasonal variances. These trends uniquely position New Zealand on the brink of a new recession, where historical revisions of data could either soften or intensify this picture.
Revised figures by Statistics New Zealand may show some economic resilience. Annual GDP growth is poised for adjustment, reflecting a lift from 2.7% to 3.5% for the year to March 2023, and an improvement from 0.3% to 1.4% for the subsequent year.
Among these economic challenges, the labor market presents another crucial concern for New Zealand's policymaking. There has been a quarterly decline of 0.7% in filled jobs, marking the second consecutive drop and the first annual decline observed in more than ten years. Furthermore, average earnings growth faltered in Q3, pushing annual earnings growth below the 2% threshold.
This scenario underscores why the Reserve Bank has reduced the official cash rate by 1.25% in its past three sessions. With future monetary policy at stake, the Reserve Bank's guidance indicates a 50% probability of executing another 0.50% rate reduction in February. In alignment, ASB forecasts a similar 0.50% cut to commence February 2025.
