NZ may already be in recession

GDP fell 0.6% in the December quarter. Although this is the first official quarter of decline, it almost certainly marks the start of a recession, with economic activity likely to fall further in the March quarter.

The December quarter result was dragged down by two key themes (from a production perspective):

  • A weakening of exports – evident in the fall of agriculture and manufacturing.
  • Reduced retail and recreational activity – not a surprise given there was a 4% yoy decline in retail volumes in the December quarter.

The March quarter result is likely to fall again, as exports remain soft, households ‘cool the jets’ further as higher mortgage rates bite, and cyclone disruptions upset the operations of some key industries across the North Island.

The Reserve Bank seems to be getting its wish of a recession a wee bit earlier than anticipated. Given the sharp decline this past quarter, I am less convinced it will be the shallow ‘goldilocks’ recession the Bank has projected, particularly when one considers how subdued consumer and business confidence have become. At least our starting point of near full employment means that cashflow is still coming in for most, so we do need to put things in perspective, but even so growth opportunities for many businesses will be few and far between in 2023.