Slowing growth not like the past

A number of people are openly thinking that the NZ economy could go into recession in the near future – though as yet no-one is explicitly forecasting it. Both Treasury and the Reserve Bank see growth continuing for the next few years.

But if our economy should happen to enter recession (defined as two quarters in a row of shrinkage even if just 0.1%) it really won’t mean much to the vast majority of either businesses or people. That is because we have become a capacity-constrained economy. This is one where growth is limited more by a deficiency of resources than of customers.


Consider the labour market for instance. The unemployment rate is at a record low of 3.2% for the deregulated era and businesses cannot find the staff they want for love nor money.

If people get laid off there will be plenty of other firms and sectors who can give them work. Take real estate agents for instance. Annual sales have fallen about 22% from their peak mid-2021 and some people will be leaving the sector. But they will face a wave of opportunities in many other industries should they choose to stay in New Zealand.

If we have a recession, it will not be one which brings worries about extended periods of unemployment. For people in this situation the answer to their future lies with them, their family, and support services rather than the macroeconomy.

It is worth noting that in the monthly ANZ Business Outlook Survey a net 42% of businesses have a pessimistic outlook compared with a ten year average net 7% feeling positive. A net 8% expect their activity levels to rise versus an average 26%.

But a net 9% plan trying to hire more people compared with an average of 8%.



Consider also one of the other classic features of a recession – the inventory cycle. As demand falls away businesses traditionally cut their orders for goods in order to get stocks of things down. But getting stocks of anything is extremely difficult these days and provided they have the finance, businesses are probably going to keep trying to grow their inventories rather than shrink them.

Exchange rate

Often a recession in New Zealand is associated with rising interest rates and a rising currency which crunches the export sector. But on a trade weighted basis the NZ dollar has depreciated by 6% from a year ago. Given that the NZD sits broadly where it was a couple of years ago, it’s probably best to say the NZ dollar is not aggravating this downturn.


Export prices

Often a New Zealand recession is caused/preceded by a collapse in export commodity prices. Some are correcting from excessive levels currently. But overall prices are about 32% above pre-Covid levels.


No lack of customers for most

The situation is well summed up by the results in the NZIER’s Quarterly Survey of Business Opinion. Each quarter since 1970 NZIER have asked businesses what the main constraint is on their ability to raise output. On average 62% have said customers. Now, only 26% say that.