Economy shrinks 0.3 percent in three months ended September

The economy shrank in the third quarter as households spent less, exports fell, and manufacturing activity decreased.

Stats NZ data showed seasonally adjusted gross domestic product (GDP) fell 0.3 percent in the three months ended September, compared to expectations of a 0.2 percent rise.

The June quarter’s GDP figure was revised to a 0.5 percent rise from the previous 0.9 percent, with annual GDP falling 0.6 percent on the same quarter last year.

“All goods producing industries were down this quarter, led by a fall in manufacturing,” Stats NZ senior manager Ruvani Ratnayake said.

The fall in manufacturing was driven by petroleum, chemical, plastic, and rubber manufacturing and food and beverage manufacturing, while construction activity was also weaker.

“The transport, postal, and warehousing industry also fell, and this was primarily due to a decline in freight logistics, with fewer goods being exported in the quarter.”

Service industries, which make up two thirds of the economy, were the one positive, rising marginally on the back of tourism earnings and increased demand for healthcare, real estate and rental services.

However, retail spending was softer, with household spending down 0.6 percent.

Household purchasing power also fell as higher interest rates bit into spending, and per capita income fell 0.9 percent.

The Reserve Bank had forecast growth of 0.3 percent, but has been trying to engineer a soft landing for the economy as it keeps interest rates high to combat stubborn inflation.

ASB economist Nathaniel Keall said the economy had clearly been growing more slowly in the past six months than most thought.

“The risk is that the economy continues to decelerate from here as the tightening already in the pipeline continues to work through the economy via a higher effective mortgage rate and net migration normalises.”

He said the weakness could alter the Reserve Bank’s rate outlook.

“Should that weaker growth outlook translate into a swifter reduction in inflationary pressures, OCR [official cash rate] cuts could come earlier than the early 2025 timeframe we’ve been anticipating up until now.”

Westpac – which had forecast a contraction of 0.1 percent – said Thursday’s data portrayed an economy that was “sliding backwards”, particularly in per capita terms.

“While rapid population growth is providing some support to demand – while also helping to boost the economy’s productive capacity – past monetary policy tightening is continuing to constrain the economy,” senior economist Darren Gibbs said.

Consumer spending would likely remain constrained in the near-term, as more households moved onto higher mortgage rates, and low commodity prices weighed on the rural sector, Gibbs said.

“And while business confidence has lifted of late, we think that business investment will weaken further in the quarters ahead,” he said.