The latest quarterly economic monitor from Infometrics reveals a decline in economic activity, with a 0.2 per cent decrease in the annual growth rate for the June quarter, marking a year-end decline of the same magnitude.
The report underscores a broad economic weakening, characterised by tighter household budgets, rising unemployment, and diminished job security. Businesses are experiencing reduced sales and are hesitant to expand their workforce, contributing to a general sense of economic pessimism. Despite some growth in sectors like health and education, driven by population increases, the overall sentiment remains bleak.
Regional disparities in job growth highlight the uneven impact of the downturn. Otago and Canterbury have seen job growth surpassing 1 per cent, whereas other regions are struggling. In particular, Tai Rāwhiti Gisborne has experienced a significant 1.2 per cent drop in job numbers. Other regions, including Taranaki, Wellington, and Nelson, have also faced reductions in employment, though to a lesser extent.
The economic difficulties are becoming more apparent as 2024 progresses. Manufacturing, retail, construction, and professional services are all showing signs of deterioration. The challenges are not uniform across the country. The mid to lower North Island is in decline, while the mid-upper North Island is relatively stable, and the upper North Island continues to face constraints, largely due to the slow recovery of the tourism sector.
The potential for interest rate cuts to stimulate economic activity remains uncertain. While there is speculation that lowering rates could boost economic sentiment, the immediate future may still bring rising unemployment and job security concerns. Households might benefit from reduced interest rates, but they will likely continue to face challenges related to job instability and a slow recovery in economic conditions.
The primary sector shows some signs of recovery, but rural areas have been hit hard compared to urban centers. Employment growth over the past year has been more robust in metropolitan areas, with a 2.4 per cent increase, compared to 1.8 per cent in provincial regions and just 0.7 per cent in rural areas. This divergence indicates varying economic drivers across different regions.
Consumer spending also reflects the current economic strain. Although inflation slowed to 3.3 per cent in the June quarter, it remains high relative to growth in card spending. This mismatch suggests that households are spending less overall, tightening their budgets amid ongoing economic uncertainty. The trend of decreased per-person spending amid rising inflation underscores the challenges facing New Zealand’s economy, with a potential for more pronounced effects in the coming months.
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