In ASB’s Economic Weekly, chief economist Nick Tuffley warns that the Reserve Bank of New Zealand’s ultra aggressive interest rate hikes could deliver a three-year per capita recession.
“If we don’t have a recession, it will only be because of the sudden flood of people entering NZ, something that seemed far-fetched a year ago when NZ’s border was being prised open”.
“We expect annual net permanent and long-term immigration inflows to continue strengthening over the course of 2023, with annual net inflows set to top 100k”.
“On a per-capita basis, GDP is set to shrink around 2% in this downturn: that’s 2% less spending or output per person”.
“Besides the recession around the Global Financial Crisis (4.2% fall in per-capita GDP), you have to go all the way back to the early 1990s for a bigger knock”.
The point is, it feels like a recession in many respects because a large number of people are feeling sustained financial pressure”.
“As you can see in the chart, our current forecasts don’t have per capita GDP recovering to its September 2022 level for nearly 3 years”.
“It took 5 years for per-capita GDP to recover from the 2008/09 recession”.
Kiwibank economics also believes that rapid immigration-driven population growth could mean that New Zealand avoids a ‘technical recession’, but per capita GDP will continue to fall.
“It looks like the Kiwi economy managed to dodge a (technical) recession over the summer period – but only by the narrowest of margins. Economic activity contracted by 0.6% in the final quarter of 2022”.
“We expect that to be followed by a flat GDP print in Q1”.
“Net migration has surged spectacularly. In the span of just 12 months, we’ve gone from an annual net outflow of 19,000 to an annual net inflow of 65,000. Truly a surge of breakneck speed”:
“Our base case still involves NZ slipping into a (shallow) recession this year”.
“The RBNZ’s sheer determination to constrain demand cannot be discounted”.
“However, the rebuild and surge in net migration questions the magnitude of the contraction and the starting point”.
Much like Australia, New Zealand could avoid a technical recession due to rapid immigration-driven population growth.
But it will sure feel like a recession as their slice of the economic pie continues to shrink.
