New Zealanders are best to keep financially hunkered down while the country's economy continues facing the brunt of a recessionary phase, an economist says.
This morning, Stats NZ released its latest data for the period between January and March, showing a decline of 0.1% in New Zealand's gross domestic product.
As a result, the country is now officially in a technical recession whilst indicators show six months where the economy was shrinking rather than growing, as the country continues battling cyclone recovery and pandemic headwinds.
So what exactly will the impacts be? (Source: 1News)
Kiwibank chief economist Jarrod Kerr said the March quarter's economic measures weren't "surprising" but that "the brunt of the slowdown is yet to come".
"We have highlighted the downside risks to the economy since last year. And the weakness [is] coming through. The RBNZ may have done too much to rein in inflation. Time will tell," he said.
"The outlook remains awkward, to put it politely. We expect further contractions in economic activity over 2023, and possibly into 2024."
Kerr said rising interest rates were still weighing down household consumer demand.
"If households spend less, which is what we are seeing, then the economy will contract harder. If businesses pull back on their hiring and investment, which is what we're hearing, then the economy will contract harder," he said.
The economist said the forecast slowdown will drive a loosening in the labour market and increased migration could mean the "unemployment rate rising to 5-5.5% in 2024".
"As the labour market loosens, its inflationary impulse will soften."
Sharon Zollner told Breakfast that the bank was picking a GDP rise of 0.2%. (Source: Breakfast)
Finance Minister Grant Robertson defended the Government's economic management shortly after the release of the figures that he said only showed GDP "falling a fraction".
"Today's outcome fits the definition of a technical recession by the barest of margins. But the resilience of the economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term," he said.
"New Zealand can handle these testing times and grow out the other side."
"The fall in central government consumption shows the Government is taking pressure off the Reserve Bank and interest rates with our careful and targeted spending.
"This will fluctuate over coming quarters as the Government puts significant resources to rebuild and recovery efforts, although overall, the Treasury noted in the Budget that Government policy will be contractionary over the next four years."
Prime Minister Chris Hipkins said this afternoon the financial effects on the second quarter were "largely driven" by Cyclone Gabrielle.
"It's had a significant impact on our primary producers and export industries and that's reflected in the GDP numbers.
"The economists are also saying thought that this is a technical recession and there isn't evidence that New Zealand's experiencing a deep or prolonged economic downturn."
Asked if he's worried the country's recession will lose him the election, Hipkins said the Labour Government will go into the election with "a proud track record".
"We've managed New Zealand's economy through a number of very challenging times in recent years including a global pandemic, an international spike in inflation and the current economic turmoil we're seeing globally as well."
Political reaction: 'Robertson's red light recession'
In opposition, National's finance spokesperson Nicola Willis slammed the Government for creating an "incredibly fragile" economy, calling it "Robertson's red light recession".
"While the Government continues to make excuses, the data does not lie: New Zealand is now in worse shape than many of the countries we compare ourselves with, including Australia, Canada and the US, all of which have faced similar global challenges but none of which face the toxic economic predicament we now find ourselves in," she said.
She said red tape, Labour's choice to "spray the money hose", and a "slow" border re-opening had "made our predicament much worse than it needed to be."
'"Now is the time for a return to the fundamentals of disciplined economic management, with a National government that backs the workers and businesses New Zealand needs to help grow our economy out of its current mess."
"National will focus on strengthening New Zealand's economy by delivering better results for government spending, providing income tax relief for everyday workers and driving the skills, technology and infrastructure needed to support future growth."
Green Party finance spokesperson Julie Anne Genter used the recessionary milestone to call for a tax on the wealthy because "it's not okay to expect everyday people to pay the price of a slowing economy while the rich sit by and get richer".
"We know that a recession will hit lower-income New Zealanders who spend the majority of their income covering the essentials like food and rent the hardest. The time is now to lift every single family out of poverty," she said.
Last week, the party announced its flagship economic policy to create an income guarantee for low-income Kiwis, while cutting taxes for people making under $125,000.
Green Party co-leader James Shaw says it will be a step towards a fairer society. (Source: Breakfast)
"Our Income Guarantee [proposal] means that no matter what happens, your income will never fall below $385 per week, after tax.. It also means that most people in paid employment will have extra money in their pockets by making the first $10,000 tax free."
Meanwhile, ACT leader David Seymour said Labour's economic management was to blame for low productivity and the weak economy. He said the party wanted to cut red tape, slash wasteful spending, and cut people's taxes by $34 billion over four years.
"New Zealanders expect first-world living standards, but the economy under Labour doesn't produce them, so Kiwis borrow the gap between a second-world economy and first-world living standards," he said.
"A fiscally-responsible Government can take the pressure of inflation and let Kiwis keep more of their money through tax cuts. All that is needed is a bit of political fortitude.
Leader David Seymour is promising to slash red tape if his party forms a coalition with National. (Source: 1News)
"Too much Government waste, too much red tape and regulation, means too much compliance time and not enough productive time.
"Meanwhile Australia is seeing growth in their economy. Last year, 28,000 Kiwis permanently moved to Australia. New Zealand risks people being its greatest export."
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