It is becoming increasingly clear that the Reserve Bank of New Zealand’s decision to hold the official cash rate at a highly restrictive 5.5% is a mistake.
The March quarter national accounts showed that New Zealanders are suffering from a deeper per capita recession, with real per capita GDP down a hefty 4.3% from the late 2022 peak, following six consecutive quarterly declines:
Higher frequency data has been terrible and suggests that the economy continues to contract.
The composite PMI has collapsed, pointing to a nasty GDP print when the Q2 national accounts are released in September:
Forward-looking labour market indicators in New Zealand continue to deteriorate, with job ads plunging and applications per job ad rocketing:
On Friday, Statistics New Zealand reported that card spending declined for the fifth consecutive month in June amid ongoing household financial strain.
“Over the past year, households have seen their spending power squeezed by the continued rise in living costs and the related increases in interest rates”, Westpac senior economist Satish Ranchhod said.
“Those pressures have been compounded by the softening in the labour market. Against that backdrop, consumer confidence has fallen to low levels, with nervousness about the economic outlook meaning that many households are keeping their wallets firmly shut”.
“With lingering pressure on household budgets and the labour market continuing to weaken, we expect spending will remain soggy for some time yet”, Ranchhod said.
Tony Alexander’s latest Spending Plans Survey showed that a net 36% of the 500 respondents intend cutting back on their spending over the next 3-6 months:
In fact, the only area where households plan to spend more is on groceries—a necessity:
The poor economic data continued on Monday, with activity in New Zealand’s services sector, which accounts for about two-thirds of the nation’s GDP, falling sharply again in June:
BusinessNZ chief executive Kirk Hope said that after a bad May result, the June figures simply got worse.
BNZ’s Senior Economist Doug Steel added that “the Performance of Services Index has been well below average for more than a year. Moreover, the weakness appears to be accelerating”.
New Zealand’s manufacturing PMI was also released on Friday and has been in contraction for 16 consecutive quarters:
The following chart from the BNZ Economics summarises the broad-based downturn underway in New Zealand:
“There is a growing chorus of startlingly weak forward indicators that, at face value, warn of a crumbling in economic activity over the second and third quarters”, BNZ chief economist Mike Jones noted.
The Reserve Bank’s ultra tight monetary policy continues to drive New Zealand deeper into recession.
