Introduction to the Economic Situation
The recent decline in GDP for the June quarter, as reported by Statistics New Zealand, has raised several concerns and issues. The 0.9% decline was a significant shock, especially since it was much worse than any predictions made by the Reserve Bank of New Zealand (RBNZ) and economists. This article aims to provide some balance and perspective on the situation.
Understanding the GDP Result
The RBNZ had forecast a -0.3% decline, while economists predicted a range of -0.3% to -0.5%. The actual result of -0.9% was a nasty shock, and it is essential to question its accuracy. We will have to wait and see how accurate it is, but it is possible that the economic performance in the quarter was not as bad as the figure suggests. A bounce back by a similar amount for the September quarter is also possible, although we won’t see that result until mid-December.
The Importance of Timely and Accurate Data
The whole timeliness issue is a significant part of the problem. If we have to wait ages for data, then we want it to be accurate. However, looking at some of the massive revisions that have taken place to our GDP figures in the past year, it is clear that this is not always the case. The RBNZ has shifted its emphasis towards more timely ‘high frequency’ data, which is a step in the right direction.
The Need for a Monthly Economic Snapshot
Having a monthly economic snapshot would be helpful in avoiding nasty shocks like the one we experienced. The RBNZ relies on accurate, timely information on the economy to base its monetary policy stance. In this year’s Government Budget, funding approval was given for Stats NZ to begin a monthly Consumers Price Index, but not until 2027. We also need some sort of monthly economic snapshot to provide more timely and accurate data.
Current Economic Trends
The ‘high frequency’ data suggests that the September quarter is traveling better than the June quarter. Retail spending figures are moving up, employment stats are starting to look firmer, as are job ad stats. Our exports, led by the primary sector, are going well. However, activity in both services and manufacturing slipped again in August after reasonable bounces in July. Despite this, things are looking up, and it is likely that there will be a reasonable lift in GDP for the September quarter.
The Role of the RBNZ
The RBNZ indicated that only around half of the 250 basis points worth of OCR cuts since August 2024 had so far fed through into the economy. This means that there is still more to come, and the RBNZ needs to decide how much more cutting is really needed given that the economy is ‘seemingly’ picking up again. It is essential to avoid over-cooking the cuts, which could lead to the economy, particularly the property market, heating up.
Conclusion
In conclusion, the recent decline in GDP for the June quarter was a significant shock, and it is essential to question its accuracy. The RBNZ has shifted its emphasis towards more timely ‘high frequency’ data, which is a step in the right direction. Having a monthly economic snapshot would be helpful in avoiding nasty shocks like the one we experienced. The RBNZ needs to decide how much more cutting is really needed, and it is essential to avoid over-cooking the cuts. Good economic data is not a nice-to-have, it’s an essential, and we deserve better. We need better, and we need to be better prepared for economic shocks and able to react to them faster.
