Weak GDP Growth Expected
Concerns over the strength of New Zealand’s economic recovery are mounting as uncertainty in the United States unsettles consumers. BNZ forecasts that GDP data, set for release today, will show the economy expanded by just 0.2% in the final quarter of 2024, making it the most pessimistic among major banks.
Other forecasts are slightly more optimistic, with ASB, Kiwibank, and the Reserve Bank predicting 0.3% growth, ANZ expecting 0.4%, and Westpac projecting a 0.5% rise. Any positive growth figure would indicate an end to the recession that saw GDP contract by 2.1% over the six months ending in September 2024.
Consumer Confidence Slips Despite Falling Inflation
Westpac’s latest consumer confidence index fell by eight points to 89 in March, remaining below its five-year average. This comes despite easing inflation and interest rates, signaling lingering concerns over the economic outlook.
Westpac senior economist Satish Ranchhod attributed the drop in confidence to rising trade tensions and financial market volatility stemming from U.S. policies. “The uncertainty created by U.S. economic decisions is clearly affecting New Zealand’s outlook,” he noted.
Job Market Weakens
The job market is also showing signs of strain, with online recruitment giant Seek reporting a 2% decline in job advertisements in February. All major hiring industries either experienced a decline or remained stagnant in terms of job postings.
Trade and Current Account Deficit Improve
Despite economic uncertainty, New Zealand’s trade position showed signs of improvement. Stats NZ reported that the country’s current account deficit shrank to $5.9 billion in the December quarter, down from $6.4 billion the previous quarter, thanks to higher export receipts.
The annual deficit for 2024 stood at $26.4 billion (6.2% of GDP), a significant improvement from its peak of $9.4 billion in the final quarter of 2022. This progress is expected to ease concerns among credit-rating agencies, which have been wary of increasing government debt.
Local Government Credit Downgrades
Despite the improvement in trade, S&P downgraded the credit ratings of 18 out of 20 local councils it monitors, citing “substantially larger cash deficits and structurally higher debt levels.” This move could lead to higher borrowing costs for local governments.
Uncertain Future
BNZ research head Stephen Toplis warned that New Zealand would not be immune to economic instability in the U.S. “The chaos caused by U.S. policies is already having ripple effects globally,” he said. “Adding to that, domestic political uncertainty ahead of the next election further clouds New Zealand’s economic outlook.”
