New Zealand’s economy contracted by 0.2% in the second quarter of 2024, falling short of economist forecasts and escaping a technical recession. The latest data released by Stats NZ reveals that our GDP is declining less sharply than the 0.4% drop anticipated by many economists and the Reserve Bank of New Zealand (RBNZ). However, the economic outlook remains bleak, with an annual GDP contraction of 0.5% by the end of June 2024—the weakest performance among New Zealand’s major trading partners.
The 0.2% GDP decline in Q2 2024 was milder than the projected 0.4%, a small consolation as the economy continues to stagnate. ANZ had the most optimistic forecast, expecting only a 0.1% contraction, while the RBNZ had predicted a 0.5% decline. Despite the smaller-than-expected drop, the contraction reflects a weakening economy that has struggled with high interest rates, inflation, and declining household confidence.
Importantly, the revision of the December 2023 GDP data from a contraction to flat growth prevented New Zealand from falling into a technical recession, typically defined as two consecutive quarters of negative growth. However, while the revised data averts the label of a recession, the economy’s performance remains lacklustre.
The decline in New Zealand’s per capita GDP has become an alarming trend. Q2 2024 marked the seventh consecutive quarter of contraction, with a 0.5% decrease. Over the year ending June 2024, per capita GDP shrank by 2.7%, a significant drop that has surpassed the depth of the Global Financial Crisis. The extended contraction has raised concerns about the long-term impact on living standards and household financial well-being.
Michael Gordon, a senior economist at Westpac, described the situation as a “rolling maul of recession,” with quarters of flat or negative growth blending into one another. Despite the slight economic improvements, the per capita data signals a prolonged downturn, with New Zealand’s economy operating below its potential output.
The economic downturn has been felt unevenly across sectors. Retail and wholesale trade, construction, and agriculture all suffered declines in the second quarter. Retail and wholesale trade activity dropped by 1.3%, a reflection of declining consumer spending. The construction sector saw a 0.4% reduction, reflecting weakening demand for housing and infrastructure projects. Agriculture, forestry, and logging were also hit hard, particularly by a sharp downturn in forestry exports.
In contrast, some sectors managed to post growth. Manufacturing saw a notable increase, driven by a rise in the production of transport equipment, machinery, and equipment. Information technology and healthcare services were also bright spots in an otherwise gloomy economic outlook, showing some resilience and potential for future growth despite the broader contraction.
Surprisingly, household spending rose by 0.4% in Q2, even as other economic indicators weakened. The increase was primarily driven by spending on food and other non-durable goods, such as fruits and vegetables. However, spending on durable goods continued to fall, marking the fourth consecutive quarter of declines. Consumers are cutting back on big-ticket items, including cars and mobile phones, reflecting broader uncertainty about the future of the economy.
This contradictory trend—where household spending grows despite a shrinking economy—raises questions about consumer behaviour. Economists suggest that while consumers are feeling the pinch, they may be redirecting spending from luxury items to essential goods, possibly as a result of inflationary pressures on household budgets.
The revision of December 2023 GDP figures from a contraction to flat growth has changed the technical narrative of New Zealand’s economic status. While the country has avoided a formal recession, the stagnation of the past several quarters remains concerning.
New Zealand’s economy appears to be stuck in a cycle of weak performance, compounded by a significant decline in per capita GDP. While the country has managed to avoid deeper contractions, the long-term consequences of this ongoing stagnation—especially in terms of living standards and economic productivity—are becoming more apparent.
The RBNZ’s decision to cut interest rates earlier this year was a response to the economy’s continued underperformance. The slower-than-expected contraction in Q2 might slightly alter expectations for further cuts, but many economists believe more reductions could come later in 2024. With the economy operating below its potential and inflation slowly receding, the central bank may feel pressure to stimulate growth through further monetary easing.
New Zealand’s economy continues to face significant challenges in 2024. While the Q2 contraction was less severe than expected, the country’s long-term economic outlook is shaky, particularly with ongoing declines in per capita GDP. As policymakers weigh their options, they are under pressure to address both immediate economic concerns and the structural factors underlying the slowdown.
