March quarter results showed a drop in GDP. Economists think that’s “Covid noise” but say recession is likely in late 2022 or early 2023, writes Anna Rawhiti-Connell in The Bulletin.
GDP drops by 0.2%
Speaking to 1 News, finance minister Grant Robertson said the drop in GDP was a sign of the “very challenging times we’ve got around the world”. The result wasn’t unexpected for some economists, although the Reserve Bank had forecast 0.7% growth for the quarter. In response, National’s finance spokesperson Nicola Willis said “The Government needs to present a plan that gives people certainty that we will get out of the current, very difficult economic situation.” Stuff’s Tom Pullar-Strecker has a handy “take five” of the main things we need to know about the result. Firstly, most banks don’t think it will make much difference to home loan interest rates but that it may mean rates don’t rise as high as some previously thought. Robertson said it was “incredibly hard to predict” whether there was going to be a recession.
Data still “riddled with Covid noise”
ANZ senior economist Miles Workman said the GDP data is “still riddled with Covid-related noise”. We last experienced negative growth in September 2021 when quarterly GDP dropped by 3.8%, reflecting the Delta lockdown. Our last technical recession, which is defined as two quarters of negative growth in GDP in a row, was in the wake of the arrival of Covid starting with the March 2020 quarter results. That was our first recession since the global financial crisis and worst since 1987. Economic activity has been volatile since then. BNZ’s head of research Stephen Toplis said “We reckon it will not be until we receive the news about the September quarter, which will be released in late December, that we will get a meaningful sense of how the economy is performing at the aggregate level.”
Not there…yet
As always, the Herald’s Liam Dann (paywalled) has a clear and concise round-up from economists of why we’re not headed for recession…just yet. Speaking to RNZ’s Checkpoint last night, Toplis said he thinks a recession is likely in late 2022 or early 2023 although he hopes it will be short and sharp. ASB’s Nathaniel Keall was wary about the longer-term economic outlook but warned against getting too pessimistic. “The economy isn’t on the brink of caving in,” he said. This morning’s Herald editorial (paywalled) warns of a long, cold winter ahead but says “with any luck it will be a short, sharp jolt rather than a dull, aching headache.”
Impact of US Federal Reserve’s official interest rate rise
Writing for the subscribers in his Kaka newsletter yesterday morning, Bernard Hickey reflected on the US Federal Reserve’s raising of the official interest rate. Hickey says: “My view is this very-fast monetary policy tightening is going to unleash a world of pain in financial markets and a hard stop to economic growth in the United States and Europe. Very quickly, unemployment is likely to start rising again and the inflation genie will disappear back into its bottle with a fright.” The US markets rallied briefly after the Fed’s announcement but fell again overnight.