The September quarter saw a 1% contraction in the New Zealand economy, according to Statistics NZ. This number represents a 1.5% decrease from the same period last year. This decline follows a 1.1% decline in the June quarter, which has formally placed New Zealand in a technical recession,
These contractions have been ongoing since 2021 when the nation was experiencing the most disruptions from the pandemic. This news marks the worst 6-month fall since the 1990s, excluding the effects of the epidemic.
This decline has been caused by a number of things. For instance, for the fifth straight quarter, construction declined 2.8% and a decline in residential construction projects was another contributor. Manufacturing also contributed with a 2.6% drop with energy production declining 2.7%, partly due to winter energy constraints. A 1.1% decline in consumer spending was also caused by a fall in household wages and a lack of business confidence.
However, there is some good news: there are indications of growth in the information technology and real estate sectors. Although dairy production increased as well, the declines in other industries could not be offset by these factors alone.
Falling into a technical recession may be cause for concern, but many economists remain upbeat about the larger picture. Many believe that the September figures represent the lowest point with improvements expected from now on. This is helped by falling interest rates which give consumers more spare income to spend. Lower interest rates will also help businesses to invest, potentially giving a boost to numerous sectors.
New Zealand’s decline has been sharper than most of its trading partners, mostly down to existing structural issues. For example, a struggling construction sector and a decline in companies producing goods have contributed to weaker trading figures.
The downturn’s magnitude has surprised economists. Certain sectors, such as government and healthcare, performed significantly worse than anticipated, albeit this was mostly due to factors like redundancy payouts and seasonal data revisions. The Reserve Bank’s move to reduce interest hikes has also lessened the burden on already suffering citizens, according to economists.
Although things appear bad in the near future, there is hope that New Zealand’s economic difficulties are soon to come to an end. The government and Reserve Bank have been laying the foundation for long-term improvements during the recovery and are keeping a close eye on developments to take action if needed.
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