New Zealand narrowly avoids technical recession as GDP falls 0.2% in Q2 2024
New Zealand’s gross domestic product (GDP) fell by 0.2 percent in the June 2024 quarter, according to the latest data released by Statistics New Zealand. This contraction was better than predicted by the Reserve Bank of New Zealand (RBNZ), which had forecast a fall of 0.5 percent. The revision in the March quarter figures, originally set at 0.2 percent growth but revised downward to 0.1 percent, played a crucial role in preventing the country from entering a technical recession, defined as two consecutive quarters of contraction.
The weak economic activity in New Zealand was in stark contrast to its major trading partners. Most economists attribute this decline to high interest rates, which have been restricting spending. Sectors such as retail trade and accommodation, agriculture, forestry, and fishing, and wholesale trade all experienced significant declines. The forestry and logging sector, in particular, drove the fall in the agriculture, forestry, and fishing sector due to a decrease in exports of forestry primary products.
However, not all sectors experienced a decline. Despite the overall fall in GDP, seven out of 16 sectors saw an increase, with manufacturing showing the largest rise of 1.9 percent. This increase was primarily driven by the manufacturing of transport equipment, machinery, and equipment. It marked the largest rise in manufacturing activity since the December 2021 quarter.
In terms of household spending, there was a 0.4 percent increase, largely driven by higher spending on non-durable items such as fruits, vegetables, and services. Surprisingly, government spending also increased, despite the National-led Coalition government’s pledge to reduce it.
On a per capita basis, New Zealand’s GDP continued to decline, falling by 0.5 percent in the June 2024 quarter. The last time GDP per capita increased was in the September 2022 quarter. Looking at the annual basis, GDP per capita fell by 2.7 percent in the year ending June 2024.
It is worth noting that New Zealand’s economy remains heavily reliant on services, with primary produce accounting for only 7 percent of GDP, the production of goods making up 20 percent, and various services contributing to the remaining 73 percent.
Looking ahead, forecasts by the Institute of Economic Research predict little to no economic growth in the coming year. This suggests that New Zealand may continue to face economic challenges in the near future. With high interest rates and declines in key sectors, policymakers will need to carefully navigate these obstacles to stimulate growth and ensure a more stable economic environment for the country.
