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Image: Tina Tiller
Image: Tina Tiller

The BulletinJune 15, 2023

The ghosts of economic slowdown, past and future

Image: Tina Tiller
Image: Tina Tiller

Today we find out if we’ve been in a technical recession. Yesterday the IMF issued a warning for the future saying growth will be slow and a lid should kept on spending, writes Anna Rawhiti-Connell in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

GDP data due today 

The ghosts of economic growth past and economic growth future have arrived. Today we get Gross Domestic Product (GDP) data which will tell us whether we’ve had a second quarter of negative economic growth which would qualify us as having gone through a recession. A retrospective set of data, it gives us figures for the three months to the end of March this year. The last GDP update on March 16 for the quarter ending December 2022 showed that the economy had contracted and growth was in the negative at -0.6%. In keeping with the crazy times in which we live, economists are divided on whether we’ll see growth expansion or contraction today.

Less overheated rather than weak

Recession is a kind of boogeyman word that spooks markets, opens up the floor for blame and in non-economic speak, affects the general vibe. Westpac economists are picking a 0.4% contraction but also seem quite chill about it (paywalled), saying “We’d characterise the economy as ‘less overheated’ rather than ‘weak’. A substantial cooling-off period is needed to bring inflation fully under control.” It’s worth keeping in mind that there are arguments that counter GDP as a primary measure of economic success, well illustrated in this piece from The Conversation. The group of economists that officially call recessions in the Eurozone use a range of criteria to do so including unemployment figures. While they’ve technically been through a recession based on GDP figures, a lot of commentary around it leans very heavily on the use of the term “technical recession” as unemployment is at its lowest level since before the creation of the euro in 1999.

Food prices remain high

Prolonged recessions are undeniably painful but I do wonder whether the average person has grown a bit indifferent to finding out whether we’re in a short, shallow or technical recession, given it feels like we’ve been waiting for this penny to drop for a while. Treasury predicted we’d avoid recession in May. All well and good but we all know what we’re paying for food these days. Officially, food prices were 12.1% higher in May 2023 than they were in May 2022, according to figures released by Stats NZ yesterday, although there are some signs prices may ease later this year.

IMF issues report card signalling a further slowing of the economy

Yesterday the International Monetary Fund (IMF) delivered its report on New Zealand, saying that it expected the economy to slow further and possibly fall into recession, with growth of about 1% for the next couple of years. Quick explainer for the unfamiliar on exactly who the IMF are here. They visit New Zealand each year and issue something of a report card. interest.co.nz’s Dan Brunskill has a good summary of this year’s report which included calls to reform the tax system, freeze minimum wage, spend less money and build more houses. It’s pretty similar to last year’s with its call for a capital gains tax, but there’s more emphasis on the government needing to keep spending in check. The IMF also issued a warning about the risks posed by the high current account deficit. That’s a measure that shows that the value of the goods and services we import has exceeded the value of the products we export, or more simply, in household or personal budget speak, an indication that we’re living beyond our means.

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