New Zealand’s weak retail sales raise technical recession risk
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NEW ZEALAND posted a second consecutive quarterly decline in retail sales volumes, opening up the possibility that the economy fell into a technical recession in the first half of the year.
Sales adjusted for inflation dropped 2.3 per cent in the 3 months through June, confounding economists’ expectations for a 1.7 per cent gain, government data showed on Thursday (Aug 25). That followed a 0.9 per cent decline in the first quarter.
The result raises the prospect of back-to-back falls in quarterly gross domestic product (GDP), the definition of recession in New Zealand. The economy shrank by 0.2 per cent in the first quarter.
While leading indicators of exports, manufacturing and construction have been soft, no economist predicts a slump. Indeed, the Reserve Bank (RBNZ) last week forecast 1.8 per cent growth as it raised interest rates by a half-percentage point for a fourth straight meeting.
“Much weaker than expected retail volumes highlight the risk that New Zealand was in a technical recession in the first half of 2022,” said Mark Smith, senior economist at ASB Bank in Auckland. “This is not our core view.”
ASB currently expects the economy grew 0.8 per cent in the second quarter and will revise that view in the coming weeks as more data emerges. The GDP report is due on Sep 15.
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Economists said that even a sharper-than-expected drop in economic growth wouldn’t deter the RBNZ from its tightening path.
The central bank last week increased the Official Cash Rate (OCR) to 3 per cent and said it would continue to tighten “at pace”. It projected a peak for the OCR of 4.1 per cent next year.
“On face value, today’s data suggest the economy may have been in a technical recession in the first half of the year,” said Miles Workman, senior economist at ANZ Bank in Wellington.
Still, “capacity pressures are so stretched that weaker-than-expected economic activity may not necessarily translate into weaker-than-expected inflation”, he said.
ANZ provisionally projects 1 per cent growth in the second quarter, and forecasts the RBNZ will hike the OCR to 4 per cent by the end of 2022. BLOOMBERG
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