Double Crash for NZDUSD As New Zealand Falls in Recession

New Zealand Q3 GDP Report (2024)

Key GDP Metrics

• Quarter-on-Quarter (QoQ):
  • Contracted by -1.0% (vs expected -0.4%).
  • Revised Q2 decline worsened to -1.1%.
• Year-on-Year (YoY):
  • Declined -1.5% (vs expected -0.4%).
  • Q2 YoY contraction revised to -0.6%.
• Per Capita GDP:
  • Fell by -1.2% in Q3.
  • Marks the eighth consecutive quarterly decline.

Sectoral Performance

• Declining Sectors:
  • Activity dropped in 11 of 16 industries.
  • Largest declines:
    • Manufacturing
    • Business services
    • Construction
  • Both goods-producing and services industries contracted.
• Growing Sectors:
  • Primary industries led by agriculture, particularly dairy farming.
  • Gains in rental, hiring, and real estate services.

Expenditure Perspective

• Overall GDP (Expenditure Measure):
  • Fell by -0.8% in Q3, mirroring the revised Q2 contraction.
• Household Consumption:
  • Declined by -0.3%, largely due to reduced spending on:
    • Essentials like groceries and electricity.
  • Increases noted in:
    • Durable goods, including motor vehicles, audio-visual equipment, and phones.

Insights

• Manufacturing Impact:
  • Sharpest decline among all sectors; nearly all sub-industries reduced output.
• Agriculture Resilience:
  • Growth in dairy farming and exports (milk powder, butter, cheese) provided partial relief.
• Economic Adjustments:
  • Data revisions align with international best practices, highlighting shifts in economic activity and structure.

New Zealand’s Q3 GDP report reflects a worsening economic contraction, driven by steep declines in manufacturing, construction, and services, alongside persistently falling per capita GDP. While agriculture and certain services offered some support, broader economic weakness and reduced household spending highlight the challenges of a shrinking economy. The negative trajectory underscores the need for targeted policy responses by the Reserve Bank of New Zealand which cut rates by 50 bps in the last meeting, to address structural and cyclical economic issues.