We May Have Popped Out Of A Double Dip Recession, But We’re Still Struggling…

Published: Sun 23 Jun 2024 06:23 PM
It might be a positive print, but the details showed broad based weakness. We had an unusual spike in electricity generation and a welcome resurgence in dairy exports… but we’re less bad and far from good.Strong population growth is supporting aggregate output. But on a per person basis, economic output declined for the sixth straight quarter. Compared to a year ago, per capita GDP is down 2.4%.Forward-looking indicators suggest that the June quarter will be a soft one for economic activity. Beyond, we expect that the Kiwi economy will struggle to eke out further growth this year. Policy settings are restrictive. High interest rates hurt.
20 June 2024: The Kiwi economy expanded 0.2% over the March quarter. It follows the technical recession over the second half of 2024. We may officially be out of recession, but the economy remains in a soft state.
Yes, the headline number is a better result than we had expected (-0.1%). And comes exactly in line (not above) the RBNZ’s forecast. But the economy remains very weak. Only half (8) of the 16 industries recorded gains. Construction, manufacturing and business services recorded chunky declines, as expected. That’s not good at all. The shift in consumer spending was also on display. We saw a decline in big ticket imports and a rise in low value imports. Households are clearly hurting and being forced to substitute away from large purchases and luxury goods, in order to meet the growing cost of essentials. Households are cutting back, and so are businesses. Weak investment intentions are being felt with a 1.3% pull back on investment across the economy. While business investment alone contracted 0.5% over the March quarter.
The heavy hand of the RBNZ is still hurting households and businesses. Restrictive monetary policy clearly continues to work. Squeezing out demand, effectively lowering inflation, but strangling growth at the same time. And the evidence of that was evident in today’s report.
On a per capita (per head basis) the economy declined 0.3% over the March quarter alone. That’s the 6th quarter in a row of consecutive declines. And compared to this time last year output on a per person basis is down 2.4%. So we’re still hanging around GFC levels when it comes to per person output.
Today’s confirmation of a weak economy proves that restrictive monetary policy is working. We are confident that the next move for rates is down. Picking the exact timing of those cuts is a little more difficult. And hinges on inflation playing ball. But by our forecasts, inflation is still set to fall back within the RBNZ 1-3% target band by the September (third) quarter. We’ll see that data in mid-October, and hopefully receive confirmation of inflation back within the RBNZ’s band then. And from there rate cuts could come as early as November.
Full Report:

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