New Zealand GDP drops 0.6% in December quarter, worse than expected

New Zealand’s economy is shrinking, with gross domestic product down 0.6% last quarter, amid speculation a recession may be approaching.

Gross domestic product (GDP) fell 0.6% in the last three months of 2022, after a 1.7% rise in the September 2022 quarter. The drop at the close of the year was larger than predicted by any of New Zealand’s major banks. Annually, GDP is still growing – up 2.4% year on year, and despite the shrinking economy, unemployment remains close to record lows, at about 3.3%.

Responding to the figures, the finance minister, Grant Robertson, said: “2023 was always going to be a challenging year. The global economy is volatile and still recovering from Covid impacts.

“While GDP is likely to move around a bit as we continue to recover from Covid, our economy is nearly 6.7% bigger than before the start of the pandemic, ahead of most countries we compare ourselves with.”

The downturn in GDP has outstripped predictions by the reserve bank and major private banks, and if the second quarter of 2023 also records a decrease, it would mean New Zealand is about six months into a recession. To be considered “in recession”, it has to record negative GDP growth for two consecutive quarters.

Since late 2022, the reserve bank has been taking steps to engineer a “shallow recession” in response to high inflation rates, and has successively raised the official cash rate, making borrowing more expensive in an attempt to curb household spending. This quarter’s level of GDP shrinkage, however, has arrived about six months earlier than the reserve bank had predicted – it had anticipated slight economic growth this quarter, followed by nine months of recession through the second half of the year.

New Zealand Council of Trade Unions economist Craig Renney said the decrease meant further reserve bank cash rate hikes should be treated with caution, “as growth is declining more quickly than anticipated and further hikes may cause unnecessary economic pain for working people”.

Opposition finance spokesperson Nicola Willis said the numbers indicated a “stalling economy” and “yet more bad news for New Zealanders already battling sky-high inflation and rapidly rising interest rates”.

According to Stats NZ, shrinking activity in the manufacturing industry was the biggest driver of the decrease, with the sector down 1.9%. Overall, nine of the 16 industries tracked by Stats NZ were down, with particular drops in retail, accommodation, arts, recreation, transport, postal services, and warehousing.

Central government expenditure fell 2.8%, the fastest fall since September 1996 – likely driven by a drop in spending on pandemic response from the height Covid-19 pandemic.

The industry that expanded the most was business services, up 3.3%, driven by rises in advertising, market research, and computer system design.