GDP drops in Q2

GDP reading: The economy deteriorated in the second quarter, with GDP decreasing 0.2% on a seasonally adjusted quarter-on-quarter basis (Q1: +0.1% s.a. qoq). This was despite rapid population growth, with GDP per capita shrinking over twice as fast as overall GDP. Historically high inflation and interest rates and an incomplete recovery in visitor arrivals continued to weigh on the economy in the quarter. On an annual basis, GDP declined 0.5% in Q2, contrasting the previous quarter's 0.5% expansion.

Primary sector contraction weighs on economy: Household spending growth moderated to 0.4% seasonally adjusted quarter on quarter in Q2 from a 0.5% expansion in Q1. Government spending improved to a 0.6% increase in Q2 (Q1: +0.2% s.a. qoq). Meanwhile, fixed investment bounced back, growing 0.2% in Q2, contrasting the 0.5% contraction in the previous quarter. On the external front, exports of goods and services contracted 0.8% in Q2 (Q1: +0.6% s.a. qoq). In addition, imports of goods and services deteriorated to minus 2.0% in Q2 (Q1: +5.9% s.a. qoq). Looking at industries, services activity was flat, industrial activity expanded strongly, and the primary sector shrank at a brisk pace due to lower agriculture and mining output.

Growth to be uninspiring ahead: Our Consensus is for the economy to return to growth in Q3 as inflation and interest rates ebb, but to remain subdued by historic standards.

Panelist insight: On the data and outlook, ANZ analysts said: “Despite the slightly stronger print than the RBNZ had anticipated, overall economic momentum remains very soggy. Putting that into perspective, the RBNZ’s potential output growth assumption (the economy’s growth speed limit before generating inflation) was +0.6% q/q for Q2. […] Looking ahead, these data haven’t materially changed our expectations for the outlook, with growth likely to remain anaemic over the rest of 2024, before a gradual recovery through 2025.”

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