In brief
- Weak retail data prompts caution; raising concerns about deeper recession.
- The IMF urges restrained Government spending and projects NZ to have some of the lowest growth in the world for 2024.
- Government is feeling the squeeze of a low current account balance, comparable to the 2009 global financial crisis.
Recent retail data dampens expectations
This month ASB economists suggested Kiwi households have been significantly reducing spending. Economist Kim Mundy pointed to weak retail data, which shows a third consecutive quarter of decline in sales. This reinforces claims of a shift into recession. With the decline in the previous two quarters, as well, our economy technically meets the criteria of recession.
The team at ASB predicted 5.5% to be the peak of the interest rate increases. Potential reductions are expected in around 12 months. Kiwibank economists also foresee economic risks coming from the Chinese economy and Kiwis’ reduced disposable incomes.
IMF: New Zealand may face a more profound recession
The International Monetary Fund has criticized the Government for its fiscal policy, warning that it should cut spending to prevent prolonged high inflation. The IMF report indicates the efforts of the RBNZ won’t likely control inflation until 2025, citing the need for fiscal and monetary policy coordination.
It lists NZ’s projected growth for 2024 as one of lowest in the world at 0.8%, alongside Italy and above only Equatorial Guinea.
The report urges fiscal consolidation, critiquing Budget 2023’s expenditure expansion while the nation experiences rampant inflation.
Statistics NZ is urged to reconsider the option of generating monthly price inflation data (CPI), in order to aid the RBNZ’s attempts at forecasting. This is in addition to the existing quarterly measurement. New Zealand remains the only OECD nation without monthly inflation data.
Credit ratings upheld but risks from large current account deficit
Global credit rating agencies Fitch and Moodys upheld New Zealand’s ratings, AA+ and AAA respectively. Fitch highlights risks from high household debt and a sizable current account deficit.
Housing construction slowing
July 2023 saw 25% fewer new homes consented compared to July 2022; annual figures indicate a 14% total decrease from the previous year.
In the year-ended July 2023 non-residential building consents amounted to $10 billion. This is a 13% increase from the previous year, but includes material price inflation. However 48% of NZ builders have reported a reduction in their incoming workload, and 66% believe worse economic conditions are coming for the sector.
Fuel prices rev up after tax change, while egg prices show signs of cooling
Some petrol pumps around NZ have seen the fuel price back above $3, in part due to reduced supply, but largely affected by the government reintroducing the fuel tax that had been removed in order to support those struggling with the cost of living.
On the sunny side, a quick retrospective look at egg prices indicates that the rapid increase felt earlier this year may be tapering off.
