‘Worst since the early 90s’: Hidden extent of downturn

Officially, New Zealand is out of recession.

Gross domestic product (GDP) lifted 0.2 percent in the March quarter.

But there’s another number that paints a much bleaker picture – and commentators say it is why things probably feel much worse than they look on the surface.

Mike Jones, chief economist at BNZ, said in recent discussions it had been clear that some people were wondering how steep declines in business orders, revenue and profitability fit in with economic activity going sideways.

He said GDP per capita was a more relevant measure to show the economic conditions being experienced by New Zealanders. Because the population has grown significantly, the drop by this measure is much sharper.

“On a per-capita basis, the economy has now contracted for six consecutive quarters, amounting to a cumulative retrenchment of 4.3 percent. That’s the largest decline we’ve seen, excluding lockdown disruptions, in data going back to the early 90s.”

He said, while the country had been an economic outperformer in 2022, the fall in GDP per capita was more significant than that of the European Union, Australia, Japan or the United States.

NZ Council of Trade Unions policy director and economist Craig Renney said the economic pie was getting bigger, but each New Zealander’s share was getting smaller.

The six quarters of decline was the worst since the global financial crisis (GFC), he said.

Exports and business investment were falling, he said, and the key drivers of growth were not working as well as they had in the past.

Independent economist Shamubeel Eaqub said the fall in per capita GDP was about the same as in the GFC, but it had happened more quickly this time.

“The GFC was longer in duration. It’s not just the drop but how long you stay in that, relative to the previous trend. If you look at the longer-term trend it’s more than we had got used to this trajectory of improvement, which we’ve now kind of lost. It’s that, that’s really important.

“This recession is different – in the GFC everything went sideways for a bit. This time around, there’s a drop in profit for businesses but households are going sideways. That’s very different.”

NZ Initiative chief economist Eric Crampton said “near-stagnant” GDP growth and “awful” productivity growth were a real problem.

New Zealand Initiative's head of research, Eric Crampton

“But it can be easy to overstate things by looking at per-capita figures when population is growing. When new migrants arrive, it can take time to find their feet – and especially for the second earner in a couple. Their contribution to GDP will be lower until employment is secured. This will matter when thinking about per capita statistics in a country that added just under a hundred thousand people over the past year,” he said.

He said it was worth checking against other indicators. Unemployment rates had lifted and were likely to continue to rise.

“But the most recent unemployment rate was 4.3 percent – lower than it had been for the entire period from 2010 until September 2018. The employment rate has dropped to 68.4 percent, but remains higher than it had been from 2010 through September 2021. The underutilisation rate has risen to 11.2 percent, but remains lower than it was at any point from 2010 through March 2019.

“Overall conditions are likely to worsen yet as the Reserve Bank keeps fighting to get inflation back within bounds. But it’s worth being careful about per capita GDP statistics in countries like Canada and New Zealand that have had recent migration surges.”

Renney said to improve, there would need to be an increase in productivity.

“We need to expand our economy into sectors where we haven’t seen the level of growth in the past but have the opportunity to growth.”

It was hard to squeeze more productivity out of farming or forestry, he said, but there could be more opportunities through technology.

The country also needed a plan for where investment was needed to produce growth, he said.

According to the news on Radio New Zealand

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