Stats NZ will announce GDP numbers for the three months to the end of June on Thursday, which will show if New Zealand has entered a recession.
Most economists believe even a modest recession is improbable, however, some feel it is possible.
Stats NZ earlier predicted that the economy fell by 0.2% in the three months to the end of March.
Because recessions in New Zealand are traditionally characterized as two consecutive quarterly decreases, a further drop in GDP in the second quarter would qualify.
Despite the fact that the country is experiencing near-record low unemployment.
The Bank of New Zealand expects Stats NZ to publish 1.5% quarterly GDP growth, whereas the Reserve Bank expected 1.8% growth in its August monetary policy announcement.
ANZ, on the other hand, is more pessimistic, lowering its quarterly growth prediction to 0.4% from 1% previously.
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“On average, leading indicators leading up to the announcement of second-quarter GDP have been worse than expected, showing an economy struggling to find resources to develop, with Covid disruption further adding to that,” ANZ economist Miles Workman said.
On the same day, ASB changed its projection in the other way, raising its second-quarter growth forecast from 0.8% to 1.2%.
Westpac is now forecasting 1.6% growth but warns that uncertainty is especially high this quarter.
New Zealand is one of the least developed nations to announce second-quarter GDP figures, and it will need to post 0.3% growth to equal the OECD average.
The United States and the United Kingdom both had 0.1% drops during the quarter.
Even if Stats NZ concludes that New Zealand’s economy declined in the first half of the year, ANZ, which has been rather hawkish on the outlook for interest rates, does not expect the Reserve Bank will be moved off its current pace of monetary policy tightening.
“While some signs imply the economy is in a technical recession, given persistent wage and price pressures, the Reserve Bank will need to maintain increasing even if this is the case,” Workman said.
If that is right, whether New Zealand is in a recession may be of greater relevance to politicians seeking economic firepower than to financial markets. The International Monetary Fund describes the two-quarter test for diagnosing recessions as a “useful rule of thumb,” but notes that it has limitations and that it may be better to utilize a broader collection of economic indicators, rather than simply GDP, to make a determination.
In the United States, the non-profit National Bureau of Economic Research, also by convention, determines whether a recession has occurred based on a subjective assessment of a wide variety of economic indicators.
A serious recession in New Zealand with dropping GDP and growing unemployment next year may be less surprising than a technical recession this year.
The Bank of New Zealand predicts a “modest correction,” with zero growth between October and March and a 0.3% drop in GDP in the three months to the end of June next year.
The bleak picture reflects the premise that rising interest rates will erode consumer spending, as well as fears about the impact of an energy crisis during the European winter and slowing development in China.
Most economists believe the economy will escape a recession next year, but much relies on whether international visitors and students return to New Zealand in pre-Covid proportions.
According to ANZ’s projections, the economy will avoid a recession next year, but only because of a robust rise in net exports.
“We do predict a reduction in domestic, gross national expenditure throughout the first half of 2023,” the bank writes.
“If foreign tourism and education do not take up as rapidly as we want, the entire economy might easily enter a slump.”