New Zealand exits recession

New Zealand reported 0.2% GDP growth in the March quarter following two consecutive quarters of decline, putting to bed its technical recession for the meantime.

The economy was buoyed by electricity, gas, water, and waste services; rental, hiring, and real estate services; education and training; and agriculture, forestry, and fishing.

Major detractors in the March quarter were construction (-3.1%), mining (-1.7%), and goods-producing industries (-1.3%).

New Zealand's economy retracted in September and December 2023 by -0.3% and -0.1% respectively. On a year-on-year basis, however, the economy grew 0.3%.

Despite the relatively positive results, ASB Bank expects the little-to-no economic growth to remain the case.

"This is only the second quarter in the last six where the economy hasn't contracted. Although growth was positive (barely) this quarter, the economy is still soggy," ASB Bank wrote in an economic update.

As an example, New Zealand's economy is still some 0.5% below the Q3 2022 peak.

The headline figure "is being flattered by NZ's strong population growth of late, thanks to very high levels of net immigration," ASB Bank noted.

"Long story short, there was still plenty of weakness evident in the Q1 production GDP data,

despite headline GDP returning to positive."

The country recorded net migration of 126,000 in 2023, according to the OECD, equating to 2% of its population of about 5.2 million.

While this is helping ease labour shortages, the OECD found it has also boosted demand for housing, contributing to an annual increase of 5.1% in rents for new tenancies in March 2024.

New Zealand's cash rate is currently 5.5% while inflation is tracking at 4%.

ASB Bank predicts the Reserve Bank of New Zealand (RBNZ) will cut interest rates from early 2025. Its inflation target sits between 1% and 3% over the medium term.

"For the RBNZ, today's GDP print isn't a gamechanger. After a prolonged period where demand exceeded supply, demand must remain below the economy's productive capacity for some time to rebalance the economy and help bring inflation sustainably back to target," ASB Bank said.