Economy back in recession as GDP shrinks by 1%

Thursday, 19 December 2024, 9:42 pm
Article: RNZ

Gyles Beckford, Business Editor

• Economy shrinks 1.0% in September quarter, -1.5% on year ago
• Contraction for two quarters in a row means a technical recession
• September quarter 2024 revised to a fall of 1.1%, but negative data of 2022/23 disappears
• Manufacturing industries slump, construction, business services weaker
• Agriculture, rental, real estate services higher

The economy was in a deeper than expected recession in the middle of the year, with widespread contraction across many sectors.

Stats NZ data shows gross domestic product, the broad measure of economic growth, fell 1 percent in the three months ended September, to be 1.5 percent lower than a year ago.

Significant revisions to previous figures resulted in a fall of 1.1 percent in the June quarter, meeting the definition of technical recession.

These were the biggest quarterly falls since late 2021 at the height of the pandemic and lockdowns, but excluding those the six monthly fall was the largest since mid-1991.

However, previous negative readings for 2022/23 have largely disappeared.

Stats NZ said extra data had shown a different performance of the economy.

"The data incorporated this year shows stronger growth over the last year, followed by two significant falls in the latest quarters," spokesperson Jason Attewell said.

Short sharp recession

The big falls in the June and September quarters were the biggest quarterly drops since late 2021 at the height of the pandemic and lockdowns.

But excluding those the six-monthly fall was the largest since mid-1991.

The main contributors to the latest contraction were a 2.6 percent fall in manufacturing, 3.7 percent in electricity and gas, 2.8 percent drop in construction, and 1.1 percent decline in retail.

The fall in manufacturing in part reflected the energy crunch in mid-winter which forced some businesses to reduce or halt production.

The growth spots were agriculture on the back of the strong dairy production, information and technology, and rental and real estate industries.

Individual shares of the economy shrank again, by 1.2 percent during the quarter, the eighth consecutive quarterly fall.

The latest GDP reading is expected to be the low point of the recent economic cycle, with falling interest rates expected to give a spark to household spending and business investment.

Forecasts are for tepid but positive growth from the end of this year picking up pace in the second half of next year to average 2-3 percent over the next few years.

New Zealand's economic activity was the weakest of all its major trading partners.

Economy was in 'extremely poor health'

Westpac senior economist Michael Gordon said the GDP report was "markedly different to expectations".

"Relative to our forecast, the biggest downward surprises were in government and healthcare," Gordon said.

"Personnel spending is a key indicator of activity for these sectors, however Stats NZ notes that redundancy payments have been inflating these measures recently and have made adjustments for them."

Gordon said the downward revision to the June quarter was partly due to an update of seasonal adjustments, but could not be attributed to any given sectors, and would need "further investigation".

ASB senior economist Kim Mundy said the goods-producing sector was the biggest drag in the third quarter, while construction activity fell for the fifth straight quarter amid a decline in residential building.

"Today's data highlight that the NZ economy was in extremely poor health during the middle of the year. And the data reinforces that it was vital that the RBNZ started to take its foot off the brake as we had noted."

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