New Zealand's GDP has fallen one percent in growth over the September quarter. Photo: RNZ
National and Labour are - predictably - attacking one another over the latest GDP figures, but an economist says both share some blame and the real culprit is the Reserve Bank.
The worse-than-expected numbers showed a one percent fall in growth over the September quarter, and the June quarter was revised to a 1.1 percent fall.
It's the worst quarterly figures since the late 2021 Covid-19 lockdowns and taken together the two quarters of contraction meant a recession since April.
Finance Minister Nicola Willis said it underscored the experiences of New Zealanders this year, "which is an economy with very tough conditions that has reflected fact that we had very high inflation".
"That led the Reserve Bank to engineer a recession with highly restrictive interest rates, and that has stifled growth. The good news is we now are having interest rate reductions with inflation under control, and growth is forecast to revive.
"Light at the end of the tunnel, which is what New Zealanders need for Christmas."
Other revisions using additional data from benchmarking and audited accounts have erased the earlier recession under Labour.
Willis has a track record of criticising the previous government's economic approach, and said that criticism still held true.
"Absolutely, because these are the scars on our economy caused by a government that was reckless in it's spending, drove up inflation and left the Reserve Bank to slam on the brakes, that flowed through into the real economy.
"We always said our job was to get inflation under control, to get interest rates falling so that growth could revive. We've made massive progress on that this year, and so now our task is to drive that growth engine even faster."
Labour leader Chris Hipkins blamed the GDP fall on National and their adoption of "the slash and burn approach to managing the economy". Photo: RNZ / Samuel Rillstone
Labour leader Chris Hipkins, unsurprisingly, disagreed.
"Nicola Willis and Christopher Luxon were telling everyone before the election that the economy was in recession. It wasn't in recession, it is in recession now, and it's the slash and burn approach to managing the economy that they have adopted that's got us there.
"This is exactly what you get when you pursue austerity politics... the last time we had a slash and burn government like this one, it was Ruth Richardson who was the minister of finance and the current massive downturn that we're seeing in the economy mirrors the one in 1991.
"No other minister of finance since Ruth Richardson has managed to produce an economic downturn that is as sharp as this one."
Infometrics chief economist Brad Olsen said the Reserve Bank was to blame for the GDP fall. Photo: RNZ / Samuel Rillstone
Infometrics chief economist Brad Olsen, however, said neither was the main suspect.
"The person to blame here is the Reserve Bank," he said.
"They raised interest rates to bring economic activity down, and they have got economic activity down - larger than they or anyone else would have expected, and probably, with hindsight, would have liked.
"We really have been in the thick of it. And I think that reflects the experiences of people across New Zealand."
He said both the current and previous government should probably shoulder some of the blame, but the finger-pointing between the major parties was just politics as usual.
"In the short term, the reduction in spending that's come through as part of the current government will have reduced economic activity in some areas, at the same time overheated economic conditions under the previous government required a bit more consolidation."
While there was expected to be better economic conditions into 2025, Olsen said people should not expect an immediate recovery.
"Manufacturing activity has been hit substantially. Meanwhile product manufacturing was down seven percent, wood activity down nearly six percent, general falls across the board, construction continuing to decline, even infrastructure investment fell for the first time in two years, and government activity continued to shrink substantially.
"A number of those areas still expected to remain weaker into the new year, in particular construction still expected to remain restrained and government finances out this week highlighting that the amount of government spending in the future is likely to remain quite tight.
"Lower interest rates in the last couple of months and a number of other partial economic indicators do suggest that we're in line for an economic turnaround in 2025 - it's not going to be substantially fast growth, but it's likely to be much better economic conditions".
He said the revisions to the previous figures were "very normal", but the changes were larger than expected because of how changeable the economy had been in recent years.
"It is the usual process. But given how much more dynamic the economy has been the last couple of years, there have been bigger changes than anyone might have anticipated."
The removal of the previous recession a year to 18 months ago "meant that the economy effectively was larger than we had all understood, but has also therefore contracted sharper in the last six months - so a larger economy but a steeper hit".
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