Economy growing again, but challenges remain

New Zealand’s economy appears to have expanded by another 0.5% in the September quarter, based on forecasts from economic consultancy Infometrics.

Stats NZ will release the official September 2023 quarter data on December 14. If the economy did expand, it would mark the second consecutive positive quarter, after growth of 0.9% in June. That followed a flat quarter in March and a 0.5% contraction in December 2022.

Infometrics Principal Economist Brad Olsen said continued jobs and population growth supported the economy in the September quarter.

“Jobs growth remains solid, and migration is adding additional demand into the economy. Recent Stats NZ population data has shown that recent population growth has benefited major urban centres the most, alongside strong population growth in areas like Queenstown as tourism activity has rebounded. Stronger population growth has supported jobs growth, with areas including Marlborough, Auckland and the West Coast seeing employment rise around 5% per annum in the September 2023 quarter,” he said.

However, Mr Olsen said high interest rates and inflation had affected spending – which increased year-on-year in dollar terms but decreased in inflation-adjusted terms – particularly in the upper North Island and lower South Island.

“Card spending is now growing at a slower pace than annual inflation, with households having to be much more careful with their money, as budgets are squeezed and bang for buck continues to erode. With inflation remaining high and mortgage rates still rising, household budgets will remain under considerable pressure into 2024,” he said.

Mr Olsen said other challenges remained. That included falling construction intentions and rising unemployment, as well as increasing pressure on the primary sector.

“Stronger trends in international dairy auctions have prompted a slight lift in the expected dairy pay-out, but this season is still expected to return $1.8 billion less than the season before. Slaughter prices for mutton, lamb and beef have also fallen in recent months too, some by considerable amounts. This lower revenue, coupled with on-farm costs rising 7.3% per annum so far in 2023, is adding extensive pressure to provincial economies,” he said.

As a result, Mr Olsen predicted “a more subdued economic outlook” for New Zealand.