Gross domestic product

Recession again, as the squeeze on households continues

21 Mar 2024

Gareth Kiernan

Our take on the latest Gross domestic product (Thu 21 Mar 2024)

0.1% fall in GDP in Dec quarter

GDP per capita down 2.1% during 2023

Biggest per-capita fall in household spending since 1992

The key numbers...

The economy re-entered recession in the December 2023 quarter, contracting by 0.1%. Four of the last five quarters have recorded negative growth, and the economy is now 0.7% smaller than in September 2022.
There were no large negative results across the main parts of the domestic economy, apart from a run-down in inventory levels. However, there is ongoing softness in household spending and business investment.
Inventories were sharply reduced for the second time in three quarters, making a -2.8% contribution to quarterly activity, as the distribution sector reverses the increased stock levels that were held during the pandemic.
A 2.9% reduction in import volumes, the fourth consecutive quarterly decline, reflects the run-down in stocks and continued weak demand from both households and businesses.
Key areas of weakness in household spending include alcohol and tobacco (year-end growth of -5.0%), clothing and footwear (-4.8%), communication (-2.6%), and restaurants and hotels (-8.8%). All these declines are the biggest since at least 1992 (excluding lockdowns). The 3.4% year-end decline in recreation and culture spending is the largest since 2009.
The 6.7% year-end decline for investment spending on plant, machinery, and equipment is the largest since 2010. The downturn in residential building is in full swing, with the quarterly level of activity slipping to its lowest level since 2018. The 4.3% year-end decline in residential construction is the biggest since 2011 (all figures excluding lockdowns).
On a more positive note, export volumes rebounded 3.2% from the previous quarter’s decline, to a new post-COVID high. Meat products and chemical products both looked particularly strong, but there was weakness in agriculture and fishing primary products.

Households' retreat masked by population growth

Year-end per capita growth rates

...and our reaction

With population growth running at 2.8%pa, New Zealand’s GDP per capita has shrunk 2.1% over the last year. This result is closing in on the 2.9% per-capita contraction recorded in 2008/09 following the Global Financial Crisis.
The extent of the squeeze on households is even more acute, with per-capita consumption spending down 2.5% over the last year. Excluding the 2020 lockdown, this is now the largest decline in per-capita spending since 1992.
Households are cutting their spending on the nice-to-haves, including alcohol, new clothing, hospitality, and leisure.
Businesses have reacted less sharply, partly because their output had previously been constrained by labour shortages. However, further declines in investment spending are possible as labour shortages ease and firms react to weaker demand levels.
Tight monetary and fiscal policy are constraining domestic growth, and sluggish international demand conditions, particularly in China, are a factor behind export volumes still being 4.2% below their pre-COVID level. A strong and sustained recovery in New Zealand’s growth is unlikely while the global economy remains weak.
Today’s result was only slightly below the Reserve Bank’s forecast of zero growth, and so it is unlikely to affect its view of future interest rates. The Bank’s focus in setting monetary policy will be dominated by inflation and labour market outcomes over the next few months.

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Gross domestic product

Recession again, as the squeeze on households continues

The key numbers...

Households' retreat masked by population growth

...and our reaction

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