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New Zealand’s gross domestic product crashed by 1% in the September 2024 quarter, a much larger fall than economists had expected. 

The slump came after a revised 1.1% decrease in the June 2024 quarter, according to figures released by Stats NZ today. 

The previous figure for the June quarter was a fall of just just 0.2% That puts New Zealand into the deepest recession since the initial Covid-related slump in 2020. 

KiwiBank’s senior economist Mary Jo Vergara said that - excluding Covid - it was the worst six-month period since 1991. 

Economists had expected a fall of just 0.4% for the September quarter. 

GDP per capita fell 1.2% during the September 2024 quarter. This was the eighth consecutive fall in the series. 

“The structure of the New Zealand economy can change quickly, which is why we update with new data each year,” macroeconomic growth spokesperson Jason Attewell said. 

An already weakening New Zealand dollar fell by about a third of a US cent to US56.30c on the back of the much worse-than-expected GDP data. 

During the September 2024 quarter, activity declined in 11 of the 16 industries that make up the production measure of GDP. 

The biggest falls were in manufacturing, business services, and construction. 

Goods-producing and service industries fell but primary industries increased. 

”The largest decline was in the manufacturing industry, with all but one of the sub-industries showing lower output this quarter,” Attewell said. 

Some industries did have rises, led by rental, hiring, and real estate services, and agriculture. 

”The rise in agriculture this quarter was driven by dairy farming. We also saw a rise in exports of milk powder, butter, and cheese,” Attewell said. 

“The data incorporated this year shows stronger growth over the last year, followed by two significant falls in the latest quarters. 

Kiwi Bank’s Vergara warned that while the numbers might appear to “set off immediate alarm bells” the revision to earlier data meant that larger falls had still not changed the overall end size of the economy. 

Mary Jo Vergara, Kiwibank economist. Photo / Supplied 

“Now that’s not to say that the economy is in a better place. Excluding covid periods, the past 6 months have been the weakest 6-month period since June 1991,” she said. 

And 11 of the 16 industries reported declines over the September 2024 quarter. 

At the same time things on a per capita basis are still deteriorating despite a significant cooling in net migration. On a per-person basis, GDP contracted 1.2%. While on an annual basis, the per capita size of the economy is 2.7% smaller. 

The New Zealand dollar had already been under pressure from a stronger US dollar following on from a more hawkish than expected message from the US Federal Reserve in the aftermath of its 25-basis point cut in its fed funds rate. 

Just after the Fed, the NZ dollar was down by about 65 basis points. 

Harbour Asset Management fixed income and currency strategist Hamish Pepper said the GDP data was confirmation that the economy is very weak. 

“Everybody expected there to be a contraction, but there were not many who thought it was going to be this large,” Pepper said.”It supports the Reserve Bank getting on with official cash rate cuts and getting the OCR back to a more neutral level more quickly than they were anticipating in the November monetary policy statement,” he said. 

For the RBNZ, today’s GDP print didn’t significantly alter the outlook, said ASB economist Kim Mundy. 

“The economy was very weak in the middle of 2024, as to be expected after a prolonged period of restrictive monetary policy,” she said. 

“Further OCR cuts should help to spur economic growth and limit the risk of doing prolonged damage. However, ongoing headwinds, including our expectation for further weakening in the labour market, and cooling net migration inflows suggest we are unlikely to see a rapid turnaround in the economy.” 

But others suggested we may now need a 75 basis point OCR cut in February. 

“With activity in freefall, we expect the RBNZ to keep cutting rates aggressively over the year ahead,” said Capital Economics’ Abhijit Surya. 

“Given the dire state of the economy, we now think risks are tilted towards a larger 75bp cut. And looking ahead, we’re more convinced than ever that the Bank will cut rates below neutral. We’re sticking to our view that the Bank will eventually cut rates to 2.25%, which is well below the terminal rate of 3% being predicted by the analyst consensus.” 

Westpac senior economist Michael Gordon remains optimistic that this would be the worst of the GDP data in this economic cycle. 

“The recent downturn in activity at least validates the RBNZ’s decision to start cutting interest rates earlier this year,” he said. 

“Our early assessment is that this is still likely to be the worst of it for GDP. The high-frequency data has been turning higher in recent months, and there are some aspects of the Q3 weakness, such as in electricity generation, that we know won’t be repeated.” 

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.