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New Zealand

A ‘real recession’ is yet to come, but the economy could already be one – The Economist

Statistics NZ on Thursday said the economy contracted by 0.6% in the fourth quarter of 2022.
photograph: 123rf

We won’t know until another three months from now, but the economy may already be in a technological recession.

But for the time being, unemployment remains at record lows, so a “real recession” won’t be felt more widely until later this year or early 2024, one economist said.

Statistics NZ on Thursday said the economy will contract by 0.6% in the fourth quarter of 2022, worse than many had predicted. Reserve Bank he forecasts 0.7% growth.

“If you go back to the third quarter, the economy grew 1.7% quarter-on-quarter,” said ANZ senior economist Myles Workman. Checkpoint.

“In a historical context, this is a significant quarterly pace of growth. Of course, if you look at the data for the fourth quarter, there is only a very small payback.”

The decline was driven by declines in the manufacturing, exports, agriculture, accommodation and retail sectors, while construction bucked the trend and expanded by 1.6%.

Workman said the data showed evidence that households, some of which are plagued by rising interest rates, are tightening their belts, as are business investors.

“But at the same time, some industries are becoming more capacity constrained. Think about tourism. They couldn’t open the door because they couldn’t find enough labor.”

Workman said the road to recession is still on the way, despite strength in some sectors and the economy being boosted by Cyclone Gabriel’s rebuilding.

“Simply because interest rates are rising. Interest rates are such a powerful driver of the economic cycle that I don’t think the cyclone and the extra activity that comes with it will change the whole story.”

The unemployment rate has remained below 3.5% since mid-2021, so even if the economy were to contract again this quarter, Workman said he wouldn’t call it a “real recession” just yet.

“The real recession on the cards probably won’t really show up in the labor market until later this year and into 2024.”

ANZ expects at least two more increases to the Official Cash Rate (OCR) to keep inflation in check. Up 25 basis points each in April and May, the OCR was 5.25%, higher than before. Since the 2008 global financial crisis.

https://www.rnz.co.nz/news/business/486118/real-recession-still-to-come-although-economy-could-be-in-one-already-economist A ‘real recession’ is yet to come, but the economy could already be one – The Economist

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