New Zealand’s gross domestic product (GDP) fell 0.2% in the June 2024 quarter, narrowly escaping technical recession after a downward revision to the March quarter. 

The economy grew just 0.1% in the March quarter compared to initial estimates of 0.2%. 

Two quarters of contraction in a row is the traditional benchmark for a recession. 

The 0.2% contraction in the June quarter was better than Reserve Bank (RBNZ) forecasts and those of most economists. However, GDP per capita decreased by 0.5% in the quarter. 

The last time GDP per capita increased was in the September 2022 quarter. On an annual basis, to the year ended June 2024, GDP per capita fell 2.7%. 

The RBNZ had forecast a 0.5% dip while several bank economists expected a fall of 0.4%. 

ANZ was most optimistic with its pick of -0.1% but warned that even that could not be considered upbeat and was unlikely enough to change the outlook for OCR cuts. 

On an annual basis, GDP fell 0.2% over 12 months to June 2024 compared with the year ended June 2023. 

“It’s effectively a recession that’s lasted two years,” Kiwibank chief economist Jarrod Kerr said. 

“Red, black, red, black and now back into red. We’ve recorded a triple trough in economic activity. 

“Today’s miserable economic report card proves that restrictive monetary policy has done enough damage to restrain inflationary pressures.” 

Westpac senior economist Michael Gordon said while the economic data was still soft, the results come as something of a relief. 

“Higher-frequency activity data had taken a marked turn lower in May and especially June, raising concerns that the New Zealand economy’s drawn-out slowdown could be entering a new, much tougher phase,” he said. 

“However, not only has the monthly data improved somewhat in July and August, but in GDP terms the June quarter itself turned out to be no worse than what we’ve seen over the last couple of years.” 

Gordon said they continue to expect the RBNZ to cut the OCR by 25 basis points each at the October and November reviews. 

ASB senior economist Kim Mundy said today’s GDP result doesn’t significantly alter the picture for the RBNZ. 

Mundy said ASB expected another 50bps of OCR cuts before the end of the year. 

“The economy is weak, as to be expected after a prolonged period of restrictive monetary policy,” she said. 

“Further OCR cuts should help to spur some economic growth (especially the interest rate sensitive sectors). 

“However, ongoing headwinds, including our expectation for further weakening in the labour market, suggests we are unlikely to see a rapid turnaround in the economy. We expect a more pronounced recovery will become evident as we progress through 2025.” 

The data by sector 

Retail trade and accommodation; agriculture, forestry, and fishing; and wholesale trade industries all fell. 

“Activity in retail trade and wholesale trade has been in steady decline since 2022,” national accounts industry and production senior manager Ruvani Ratnayake said. 

Forestry and logging drove the fall in the agriculture, forestry, and fishing industry. This is mirrored by a fall in exports of forestry primary products. 

Despite the overall fall in GDP, seven out of the 16 industries increased. The largest rise was in manufacturing. 

“A rise in transport equipment, machinery, and equipment manufacturing drove the increase in manufacturing. This was the largest rise in manufacturing activity since the December 2021 quarter,” Ratnayake said. 

Household spending was up 0.4%, driven by increased spending on non-durable items including fruit and vegetables, and services. 

Spending on durables fell for the fourth consecutive quarter, driven by reduced spending on new motor vehicles and telecommunication equipment such as mobile phones. 

EARLIER

The economy is likely to have contracted in the second quarter as high interest rates took their toll on consumption, economists say. 

Fresh GDP data for the second quarter of 2024 is due today at 10.45am. 

The Reserve Bank (RBNZ) has forecast a 0.5% contraction for the economy. Bank economists have made a range of picks, from -0.4% to -0.1%. 

After a bounce-back into growth territory in the March quarter, that shouldn’t be enough to meet the technical definition for another recession. 

However, GDP data is often revised so there remains an outside chance that the first-quarter lift of 0.2% is revised down, which could mean we stayed in recession. 

Regardless, GDP has continued to go backwards on a per capita basis. 

Westpac senior economist Michael Gordon has described the past year as one long “rolling maul of recession where one-quarter of flat or slightly negative growth has merged seamlessly into another”. 

The RBNZ has already forecast that the country will be in recession again, with another contraction expected in the current third quarter, but Westpac’s Gordon saw some signs of growth returning. 

“Our forecast is now slightly stronger than the -0.5% that the Reserve Bank expected [for the second quarter] in its August Monetary Policy Statement, though if our forecast proves correct, it’s unlikely that it would influence the RBNZ’s thinking much,” Gordon said. 

Westpac is picking a contraction of 0.4% today. 

ANZ has the most upbeat forecast for the GDP data, picking just a 0.1% contraction. 

“While our forecast is well above the RBNZ’s August MPS forecast, it’s certainly not strong in any sense of the word,” economist Henry Russell said. 

There was plenty of uncertainty surrounding the forecast, he said. 

Today’s GDP data wasn’t likely to be a game-changer for the monetary policy outlook, either way. 

“Even in the case of an upward surprise, economic momentum is likely to still be soft enough to be consistent with rising spare capacity and falling inflation,” he said. 

“On the other side, a material downward surprise would need to be weighed against a rapidly shifting outlook now that interest rates are falling.” 

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.