What is the risk of a recession for New Zealand?

What is the risk of a recession for New Zealand?

More bad news for the US economy doesn’t mean New Zealand is about to slip into recession, economists say, but it does come as cold comfort to struggling families and businesses.

The United States has just recorded its second quarter of decline in Gross Domestic Product (GDP), down 0.9% in the second quarter, after falling at an annualized rate of 1.6% in the first three months of the year.

Two consecutive quarters of decline are considered a recession, although in the US the official decision is made by a panel of experts.

Westpac senior economist Satish Ranchhod said the bank was not predicting a recession for New Zealand, but times were definitely tough.

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“We’re facing some big headwinds as an economy, between the cost of living squeeze, interest rates rising and the global economy slowing, there’s a chance we could see a contraction in New Zealand’s economic activity,” he said. said.

Rising inflation has prompted central banks across the world, including the Reserve Bank of New Zealand, to raise interest rates to help stem the rise in prices, and there are concerns they could overtake.

House prices are falling and New Zealand’s GDP fell by 0.2% during the March quarter, following a 3% increase in the previous quarter. GDP for the June quarter is released in September.

The United States has just reported its second quarter of decline in gross domestic product.

Courtney Crow/AP

The United States has just reported its second quarter of decline in gross domestic product.

New Zealand’s economy was slowing but was still in a good position, Ranchhod said.

“We have unemployment at a record low. If we’ve seen a bit of a slowdown or even if we’ve seen a brief recession, we’re still very well positioned.”

The most vulnerable parts of the economy were linked to the domestic sector, such as retail and hospitality.

One of the biggest obstacles to activity this year and in 2023 would be rising mortgage rates, which have risen sharply in recent months.

In the next six to 12 months, about half of mortgages will be repriced and many people will see their mortgage rates increase by 2% to 3%, he said.

Independent economist Benje Patterson said there is a difference between a technical recession and recession-like conditions.

New Zealand had a very smooth March quarter because of the Omicron Covid-19 outbreak, but when the country got back up and running and started welcoming back visitors, there may have been a rebound in the June quarter.

“So by the time GDP data comes out for the first half of the year, we will probably have technically avoided a recession, but the reality is that this doesn’t necessarily mean we don’t have recession-like conditions persisting in New Zealand. ”

This meant that businesses and households were pulling back on spending and activities. Families had less discretionary income, and falling house prices hurt spending and made borrowing more difficult.

Banks are also becoming more cautious about lending, in part because of their concerns about the risk of a recession, he said.

Weaker-than-expected US GDP data did not directly change the situation in New Zealand, but it was another sign of risks to major trading partners and the global economy.

Patterson took issue with the Reserve Bank’s statement when it raised rates earlier this month that the economic risks were “medium-term”.

“My comment was that we must have different perceptions of time, and that just reinforced that for me, that these risks are closer together.”

If growth cools faster than expected, the Reserve Bank may not reach an official 4% cash rate.

“The main thing they wanted to say to markets and companies was to get their heads on the line, inflation is a big beast, and we are aggressively going after it.”

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