Herald on Sunday
Did we just have a recession? Here comes the big reveal . . .
Brace yourself for the big reveal. Has New Zealand been in a recession . . . or not? We find out on Thursday, when Stats NZ releases the official GDP figures for the first quarter.
For the record, a consensus of market economists now expects the GDP figure to be positive, meaning we will have avoided recession by its most common definition — two successive quarters of negative or zero growth.
But they are hedging their bets. There is so much uncertainty in the world right now that neither a surprise on the upside nor a surprise on the downside would be surprising at all.
In a rational world that should make the dreaded “R” word a bit redundant this year.
And if we were in recession it certainly wasn’t like the grim downturns we had when I was young in the 1980s and early 1990s.
At a personal level, it’s employment not output that tends to define our economic experience.
New Zealand just hasn’t seen the kind of unemployment that creates a deep recessionary spiral.
And regardless of how the numbers fall they are historic. The time has passed. It’s over. It was what it was.
“We don’t want to get distracted by debate about whether the NZ economy skirted a technical recession . . . especially when the unemployment rate is so low and falling,” writes BNZ’s head of research Stephen Toplis in his preview of the big number.
“Our point is principally that New Zealand’s economic indicators continue to acquit themselves very well.”
That’s a sentiment echoed by all the local economists. I’ll echo it too, but with the caveat that I’m a journalist not an economist.
Quantum physics tells us that there are particles which don’t exist in a specific state — until they are measured. Economies can be a bit like that.
So let’s not pretend that the revelation on Thursday won’t present a doozy of a political football.
The first quarter of this year was always supposed to be a tough one for the economy.
In fact, apart from the lockdown hit second quarter of last year, it was supposed to be the tough one of the pandemic.
It includes the traditional peak season for international tourism and the time that international students arrive. Neither of which happened this year.
Based on that the RBNZ still had a 0.6 per cent fall in GDP pencilled in for the quarter in its Monetary Policy Statement in May.
But that’s an outlier now, with ANZ picking a rise of 0.5 per cent, Westpac 0.6 per cent and both ASB and BNZ a rise of 0.8 per cent.
It looks like those of us who went shopping through the summer were the heroes, with household spending coming to the rescue to offset the loss of tourist activity.
At ANZ, senior economist Miles Workman says he expects the data will be “pretty noisy under the hood”.
Capacity constraints — like the difficulty finding labour, global shipping delays and supply bottlenecks — are probably a larger constraint on activity than the demand and income shock, he says.
In other words, the economy is suffering from running too hot.
Clearly, given we’ve just dodged a technical recession, it isn’t running that hot.
But the structural constraints imposed by the pandemic, not just here but around the around the world, are the big problem — not a lack of money or the desire of consumers to spend it.
The good news (for those who really like to worry about the economy) is that even-strongerthan-expected numbers could be read as bad news.
If topline growth is stronger than expected then it will provide further of impending inflationary doom.
Numbers out in the US last week showed strong inflation setting in.
This is the development that has many economists fearing interest rates will rise, crashing over-valued markets and putting the squeeze on a heavily indebted world.
Then we really would have an unambiguous recession to talk about.
There are plenty of others, of course, who see inflation as a temporary pandemic-driven phenomenon.
That all brings us back though to the real problem in the world right now being outside the real of economic theorists.
The problem in the last quarter, this quarter and at least the next few quarters, is a nasty virus called Covid19.
Our response to it — locally and globally — remains the fundamental driver of economic success.
ASB chief economist Nick Tuffley puts it in his latest economic outlook:
“Countries’ economic fortunes this year and next will be heavily influenced by how swiftly populations get vaccinated against Covid-19 and start to allow freer movement both within their borders and across them.”
How well New Zealand does on these fronts will be hugely significant and have a great deal of bearing on our GDP performance through the next year or two.
Unfortunately there’s a lot that is outside our control.
An efficient or less-efficient vaccine rollout might shift the time line for reopening a few months in either direction.
But our success remains tied to the success of other countries in terms of both the flow of people and the world and the supply of goods — both of which are constraining our potential growth.
It’s easy to forget that life is not yet normal. Not by a long shot.
Central banks get it. Whatever the headlines read on Thursday, the Reserve Bank will have its sights set further out.
We probably should too.