The Q1 national accounts release revealed that New Zealanders are experiencing a deep recession, with per capita GDP plunging by 4.3% from the late 2022 peak following six consecutive quarterly declines:
The forward looking composite PMI is also pointing to a nasty GDP result when the Q2 national accounts are released in September:
Advertisement
ANZ chief economist Sharon Zollner believes that the recessionary conditions caused by the Reserve Bank’s 5.25% of interest rate hikes have successfully driven down New Zealand inflation, clearing the way for rate cuts in the near future.
“Construction is experiencing the largest fall in activity versus a year earlier, followed by retail, but every sector except agriculture is reporting weaker activity than a year earlier”, Zollner noted in ANZ’s latest Business Outlook.
“The signals for Q2 GDP are extremely weak. We have pencilled in a small decline at this early stage”.
Advertisement
“The net proportion of firms expecting higher costs and expecting to raise their prices in the next three months both dropped meaningfully”, Zollner said.
“Both have now fallen off the plateau they were stuck on for 8-9 months this year. Inflation expectations also continue to steadily decline”.
ANZ’s Business Outlook also shows that pricing expectations across all sectors of the economy have fallen:
Advertisement
Wage growth expectations over the coming 12 months have also fallen below 3%:
Advertisement
Moreover, “the biggest fall [in wage expectations] was in the services sector, which provides three quarters of jobs in the economy, so that’s a win for the RBNZ’s inflation fight”, notes Zollner.
ANZ’s overall assessment is that “the medicine is working” and that “the economy is clearly weak”.
As a result, “we are finally seeing renewed meaningful progress on bringing inflation pressures down”, which should enable the Reserve Bank to begin cutting rates earlier than they currently expect.
Advertisement
I will add that New Zealand house prices have also begun falling once more, which strengthens the case for an earlier commencement of rate cuts.
