What kind of economic conditions are New Zealanders facing as we head towards Christmas? Photography: Paul Taylor
New Zealand’s economy declined in the September quarter.
Statistics New Zealand said today that the economy contracted by 0.3 percent compared to the June quarter, and per capita gross domestic product fell by 0.9 percent.
This data is weaker than economists’ consensus expectations.
The slowdown in the manufacturing sector has weighed on the contraction, which has occurred despite some recent record-breaking net migration.
“All goods-producing industries declined this quarter, led by a decline in manufacturing,” Ruvani Ratnayake, national accounts and production industry director at Stats NZ, said today.
The decline in manufacturing was driven by the petroleum, chemicals, plastics, rubber and food and beverage industries.
“The transportation, postal and warehousing industry also declined, primarily due to a decline in freight logistics, with fewer goods being exported in the quarter,” Ratnayake said.
Despite the overall decline in GDP, 8 out of 11 service industries achieved growth this quarter. The strongest increases were seen in health care and social assistance; Leasing, recruitment and real estate services.
GDP fell 0.6 percent compared to the same period a year earlier, its first annual decline since the delta shutdowns in 2021.
However, it rose by 1.3 percent during the year ending September 2023, compared to the year ending September 2022 (the difference lies in the two ways of comparing annual growth).
The market reacts
In the wholesale interest rate market, the two-year swap rate fell to 4.90 percent in reaction to the data, from 4.985 percent just before the release.
The 10-year swap rate fell to 4.49 percent from 4.51 percent.
Interest rates were already heading lower due to a more dovish-than-expected release from the US Federal Reserve, which forecast 75 basis points of potential interest rate cuts next year.
The New Zealand dollar, which had been sharply stronger just before the release, fell to 61.74 US cents from 62.01 US cents.
Industry performance
Production in the transportation, postal and storage sector fell by 4.5 percent in the three months ending September 30.
Goods-producing industries overall declined by 2.9 percent on a quarterly basis.
But the media and communications sector rose by 1.5 percent, and the health care and social assistance sector rose by 2.3 percent.
Rental, employment and real estate services rose 1.0 percent compared to the June quarter.
Hopes for growth were dashed
Economists had expected the latest Statistics New Zealand data to show the economy was still growing – just that.
But they warned that conditions will feel stagnant for many people, even if the economy grows.
“The possibility that the latest GDP estimates may rise significantly is a good reason to be cautious in trying to interpret the data,” said Nathaniel Keil, an economist at ASB.
“However, this is a significant miss over the last two quarters compared to both the RBNZ and consensus expectations, suggesting there is much less activity than we thought.
“The risk is that the economy continues to slow from here as tightening actually continues to work through the economy through a higher effective mortgage rate and net migration normalizes.”
Kiwibank had expected GDP growth of 0.2 per cent for the quarter.
Chief Economist Jarrod Kerr noted that regardless of whether we are technically in a recession or not, the next few months will be very weak.
ANZ’s Miles Workman took a similar tone. ANZ Bank has opted for growth of 0.3 per cent during the quarter – in line with the latest Reserve Bank of New Zealand forecast.
Workman said the story is very different if we look at GDP per capita.
“Growth in population is 0.6 percent [quarter-on-quarter] “It means our 0.3 per cent GDP growth forecast suggests that per capita contraction is likely,” he said before the release of the Stats NZ data.
“Looking ahead, while the economy may avoid another major-level technical recession, a per capita reduction in this data probably won’t be so fortunate.”
If we take increased immigration out of the picture, he said, the basic condition of the economy will be very weak indeed.
Additional reporting by Jamie Gray and John Weekes.