Major New Zealand economic data out tomorrow? The speculation on the economy and interest rates

There is no doubt that the figures on New Zealand's overall economic performance in this year's second quarter, due to be released by Stats NZ this Thursday, will be a focus for many property investors. Fears of a domestic recession have been hanging over New Zealand recently. Although some economists consider the likelihood of a recession very low, others believe it may not be far away, given the unprecedented challenges the pandemic has brought to the national economy and the continuing fall in house prices.

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Financial institutions' forecasts

Stats NZ previously estimated that New Zealand's GDP would contract by 0.2% in the first quarter, ending in March. According to Stuff, BNZ had forecast year-on-year GDP growth of +1.5% for the second quarter, while the Reserve Bank of New Zealand forecast even stronger second-quarter growth of +1.8% in its August Monetary Policy Statement. ANZ was relatively pessimistic by comparison, lowering its second-quarter GDP growth forecast last Friday from +1% to +0.4%. Explaining the revision, ANZ economist Miles Workman said previous GDP figures released by Stats NZ had consistently been weaker than expected, suggesting the economy was struggling to gain momentum, while the pandemic's negative effects would only make things harder. ASB and Westpac also released second-quarter GDP growth forecasts around the same time. ASB revised its forecast from +0.8% to +1.2%, while Westpac forecast +1.6%, although it said uncertainty around this quarter's GDP forecast was particularly high.

Viewed internationally, New Zealand would need growth of +0.3% to match the average economic growth rate across OECD countries. Notably, both the US and the UK recorded a slight GDP contraction of 0.1% in the second quarter.

According to Stuff, ANZ, which has maintained a hawkish outlook for the Official Cash Rate (OCR), said that even a Stats NZ finding that the economy contracted in the first half of the year would not shake the Reserve Bank's current determination to tighten monetary policy. Workman believes that although some indicators suggest New Zealand is in a technical recession, inflationary pressure means the Reserve Bank needs to continue raising interest rates.

The data lag behind reality

YIJU notes that the economic figures released ahead of tomorrow's latest GDP data have been something of a mixed bag. For example, retail revenue unexpectedly fell in the second quarter, largely because of declining vehicle sales. A strong rebound in vehicle sales in August, however, highlighted that the earlier decline was actually related to supply chain problems. By comparison, the recently released second-quarter property construction figures were much more encouraging, with quarterly growth of +2.6%, well above economists' forecasts. It is now mid-September, and regardless of whether there is a technical recession, rising living costs will still leave many households feeling the shadow of a downturn. On the positive side, unemployment remains relatively low, and other economic data indicate that New Zealand's economy has continued to develop steadily since the start of the third quarter. CoreLogic chief economist Kelvin Davidson said he did not expect tomorrow's GDP figures to have much direct effect on the property market or investor confidence. Any effect might even be favourable for property, for example by providing greater scope for mortgage rates to rise further.

Forecasts for the economy ahead

That said, if New Zealand's economy does enter a recession, it could happen next year at the earliest. The Reserve Bank of New Zealand's latest forecast puts GDP growth in the first quarter of 2023 at +0.4%, followed by 0.0% in the second quarter. It then forecasts that growth will not return to positive territory until the third quarter ending in September 2023, at +0.1%. Growth is forecast to be 0.2% in each of the following quarters, continuing through to September 2024. Encouragingly, most analysts currently believe New Zealand's economy will avoid recession next year if overseas tourists and students return in pre-pandemic numbers. ANZ's forecast also states: 'If the economy avoids recession next year, it will depend on a strong recovery in New Zealand's net export sector. If international tourism and education do not rebound as quickly as we hope, the economy could easily slip into recession.'

So what is really happening with arrivals into New Zealand? Stats NZ estimates that around 5621 non-New Zealand citizens arrived to live in New Zealand long term in July this year. This was the sixth consecutive monthly increase in arrivals in this category, compared with just 1639 in January. However, the number of non-New Zealand citizens leaving the country long term has also risen in recent months, with around 4425 departing in July. This reduced the net inflow in July to 1197, which was nevertheless the highest figure since COVID-related travel restrictions were introduced in March 2020. That remains well below the 6573 non-New Zealand citizens who arrived to settle here in July 2019, before the pandemic.

YIJU believes that although the number of non-New Zealand citizens moving here remains very low, it is gradually increasing. If this trend continues, population changes brought by new migrants will inject greater vitality into New Zealand's economy over the coming months.