NZ escapes recession after growth
AUCKLAND: New Zealand has dodged recession, the economy having grown 1.7% in the June quarter, but the strong result could be bad news for borrowers.
Economists say the buoyant economy will keep pressure on the Reserve Bank to lift interest rates in its fight to beat inflation.
ASB yesterday morning lifted its forecast peak for the official cash rate (OCR) from 4% to 4.25%.
Many pundits had predicted new gross domestic product (GDP) stats would show New Zealand escaping the dreaded Rword, but concerns had been lingering about the economy.
GDP rose 1.7% in the June 2022 quarter, following a 0.2% fall in the March 2022 quarter.
‘‘We are now forecasting a higher OCR peak of 4.25% in February 2023,’’ ASB senior economist Mark Smith said.
‘‘GDP was stronger than our expectations, with signs that momentum in the second half of 2022 will be also stronger than we have been anticipating,’’ he said.
‘‘This adds up to the risk that inflation pressures will be even more persistent.’’
The New Zealand dollar rallied about 10 basis points on the back of the release, to US60.22c.
BNZ currency strategist Jason Wong said the market’s reaction to the data was subdued.
‘‘The underlying figures were actually pretty weak if you look at the demand and expenditure figures,’’ he said.
Exports were up 20.5% and drove the GDP increase, he said.
‘‘It wasn’t really a sign of strength, put it that way.’’
The service industries, which comprise about twothirds of the economy, were main drivers of the increase in domestic economic output, up 2.7%.
‘‘This is a positive result and underlines the resilience of the economy,’’ Finance Minister Grant Robertson said.
‘‘Our strong growth in the June quarter comes at a time the IMF estimated that global output shrank.’’
New Zealand was wellplaced to face upcoming challenges, Mr Robertson said.
‘‘The global economic outlook is being revised downwards as high inflation, the war in Ukraine and ongoing pandemicrelated disruptions continue to affect the countries we trade with.’’
National Party finance spokeswoman Nicola Willis said the economy was still underachieving.
Inflation was at its highest rate in a generation, she said.
‘‘The economy is not growing enough to boost household incomes,’’ she said.
‘‘Real wages have fallen by 3.7% in the past year, meaning most Kiwis are going backwards as their wages struggle to keep up with rising prices.’’
In the June 2022 quarter, households and international visitors spent more on transport, accommodation, eating out and sports and recreational activities.
Border reopenings and relaxation of local and global travel restrictions supported growth in industries affected by Covid19 response measures, Ruvani Ratnayake of Stats NZ said.
Ahead of yesterday’s announcement, bank economists had taken divergent views, one picking only 0.4% growth and another forecasting 1.6% growth.
A recession is defined as at least two consecutive quarters of negative growth.
GDP rose 3.0% in the last three months of 2021 but fell 0.2% in the first three months of this year.
Average annual GDP rose 1% in the year to June 2022.
Activity indicators from business and consumer surveys had been very soft, as had retail sales and manufacturing data, ANZ senior economist Miles Workman said earlier this week.
Only the construction sector had outperformed expectations and he predicted 0.4% growth.
Westpac chief economist Michael Gordon highlighted the border reopening and resumption of overseas tourism as likely to boost travel services, accommodation and recreation. He picked 1.6% growth.
‘‘A result in line with our view would emphasise that the New Zealand economy remains far from recession. Indeed, the challenge is one of an economy that is running too hot,’’ he said earlier.
The economies of Australia, Canada, the European Union and UK all grew in the second quarter but the United States’ economy shrank 0.4%.
Yesterday, new stats showed exports rose in the June quarter but New Zealand still recorded a trade deficit. —