Source: Kiwibank
Kiwibank Economics – The Kiwi economy contracted a hefty 1% over the September 2024 quarter. And last quarter’s -0.2% decline was revised to a significantly weaker 1.1%.
Compared to the RBNZ’s and market consensus of another -0.2% contraction, or a -0.3% contraction that we had expected to see, the 1% fall in the economy may seem to set off immediate alarm bells.
But reader beware the larger falls have still not changed the overall end size of the economy.
Methodological changes from StatsNZ in their GDP calculation have seen historical prints revised upwards over a longer period in previous quarters. Which has now balanced out the bigger falls in the June and September 2024 quarters seen today.
Essentially, the end point of the economy is not too different from what was originally published in June.
But the path in getting there has changed. The economy has been stronger than originally thought in the earlier parts of the past year. And instead, we are now facing much sharper declines.
It’s a snowball effect. And overall, the actual size of the economy is still 0.4% larger than what was published for the June 2024 quarter off the back of the higher revisions prior to Q2.
Now that’s not to say that the economy is in a better place. Excluding covid periods, the past 6 months have been the weakest 6month period since June 1991. And 11 of the 16 industries reported declines over the September 2024 quarter.
At the same time things on a per capita basis are still deteriorating despite a significant cooling in net migration. On a per person basis, GDP contracted 1.2%. While on an annual basis the per capita size of the economy is 2.7% smaller.
The light at the end of the tunnel is upon us. The September quarter should mark the final quarter of the economy in decline for this cycle.
The additional 100bps of cuts that took place over the December quarter should provide some relief to the Kiwi economy in the current quarter. And with further cuts to come, 2025 should be a much better year.
High interest rates have hurt, and the economy demands more easing. We expect another 125bps of rate cuts to come, to return policy settings to more neutral levels.
