(Bloomberg) — New Zealand’s economy only just emerged from recession in the first three months of the year with very modest growth, economists predict.
Gross domestic product increased 0.1% in the first quarter, according to the median estimate of 16 economists surveyed by Bloomberg News. Three respondents — all from local banks — forecast a contraction and two tip zero growth. The report is due June 20.
The Reserve Bank, which forecasts 0.2% growth for the quarter, has kept monetary policy restrictive to curb demand and get inflation back under control. While consumers have reduced spending and hiring has slowed, the economy may have been able to eke out a slight expansion due to a tourism recovery and record immigration that has swelled the population.
“The pull back in GDP has been neither unexpected nor unwanted from the perspective of the Reserve Bank,” said Kelly Eckhold, chief New Zealand economist at Westpac in Auckland. “But it is nonetheless jarring for businesses and households not used to such prolonged periods of stagnant economic activity.”
Subdued Outlook
The economy has contracted in four of the last five quarters, and even if it exited recession in the three months through March, latest data suggest it will remain subdued for some time.
Consumer confidence has slumped this year while businesses are increasingly pessimistic about sales and profits. The services sector — which makes up two thirds of GDP — in its deepest contraction in nearly three years, home-building approvals are at five-year lows and job ads are down 30% from a year earlier.
The manufacturing sector has been in contraction for 15 straight months.
“Looking at the latest run of information, it is difficult to deny the direction of risk to growth,” said Doug Steel, senior economist at Bank of New Zealand. “A lot of the weakness had elements of softer demand. This increases the chance that the RBNZ may see softer growth as more disinflationary than was the case previously.”
The RBNZ has so far maintained a hawkish stance, keeping the Official Cash Rate at 5.5% in the face of sticky domestic inflation. Last month, the central bank projected it wouldn’t start reducing rates until the third quarter of 2025.
Most economists expect policymakers will cut rates in the fourth quarter this year, although several don’t see an easing starting until next year.
The first-quarter GDP report may bolster the case for rate cuts to start sooner than the RBNZ’s latest projections imply, said Miles Workman, senior economist at ANZ Bank in Wellington.
“The data are expected to provide further confirmation that underlying economic momentum is weak and consistent with continued disinflation,” he said. “While growth is expected to find a floor this year, it is expected to remain sub-par for a while yet. This backdrop is consistent with the RBNZ cutting the OCR sooner than signaled in May.”
–With assistance from Shinjini Datta.
More stories like this are available on bloomberg.com
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Published: 18 Jun 2024, 01:46 AM IST