As New Zealand reports another quarter of slow economic growth, it is combining with inflationary pressures to pose a worrying economic outlook – here and around the world.
Analysis: Stagflation – stagnation of economic activity accompanied by inflation – poses the key risk to the global economy in these days.
According to the International Monetary Fund, global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent this year. Global inflation is forecast to rise from 4.7 percent last year to 8.8 percent this year.
Statistics NZ will publish the country’s gross domestic product figures for the third quarter of 2022 on Thursday, as global economic growth slows.
New Zealand is the last OECD country to report these figures. This reduces the value of the information to the public. Regardless of the announcement, a weak growth profile is ahead of us.
The Reserve Bank is picking GDP growth was just 0.8 percent for the quarter. Bank economists’ estimates range from 0.9 percent (ASB and Westpac) to 1.3 percent (BNZ).
That’s for the quarter. For the 12 month calendar year, the IMF projects NZ’s growth will slow to 2.3 percent in 2022, and 1.9 percent in 2023. The OECD’s November 2022 projection note reports real GDP growth is projected to slow to 1.0 percent in 2023 and 1.2 percent in 2024.
Many of us have already forgotten the Covid-19 traffic light system. New Zealand spent most of the March 2022 quarter under the red setting. GDP fell 0.2 percent.
New Zealand moved to the orange setting on April 14 and remained there for the rest of the June quarter, as travel restrictions gradually eased. Growth bounced back 1.7 percent.
It wasn’t until September 13 that the Covid-19 protection framework ceased. All mask wearing requirements were removed, except in healthcare and aged care facilities. Vaccination was no longer needed to enter New Zealand. It is that constrained September quarter that this week’s data describes.
Slow growth globally
Weak growth characterises the September quarter among OECD countries. Japan contracted by 0.2 percent and, according to the first estimates, the UK economy has done the same.
Australia’s GDP rose 0.6 percent (down from 0.9 percent in the June quarter); Canada grew 0.7 percent, Italy was up 0.5 percent, Germany grew 0.4 percent, and France was up just 0.2 percent.
The world’s two largest economies showed growth rebounds. GDP grew by 0.7 percent in the US following contractions in the two previous quarters. China’s economy expanded at a seasonally-adjusted rate of 3.9 percent in the July-September period, a recovery after the second-quarter contraction of 2.7 percent – but with the uncertain impact of relaxed Covid restrictions still to come.
Quarterly national GDP growth rates
These low economic growth rates and increasing consumer and producer prices are characterising the current economic outlook for many countries, including New Zealand.
This country's consumer price index inflation reached a 30-year high of 6.9 percent in March, then increased further to 7.3 per cent in June, and 7.2 percent in the year to September 2022.
We also observe increases in prices received and paid by producers. This is directly related to what is called the input-output linkages. Most sectors use the output of other sectors in the economy as intermediate goods. Raw milk, for example, is not only an output for farmers but is also an input for producers of dairy products for final consumption in New Zealand.
Such interlinkages have important consequences for sectoral productivity. That is, inefficiency in one sector can create productivity problems in other sectors.
Chinese growth will slow
China, with its eagerness to innovate and to cooperate, still has much to offer.
Beijing’s hard-line zero-Covid policy is now loosening. This will have positive effect on economic activity. However, double-digit growth rates, which once characterised the Chinese economic miracle, are not returning any time soon.
Growth in China had started to weaken before the global pandemic. The IMF projects China will slow significantly in 2022 and 2023. Growth is expected to decelerate to 3.2 percent in 2022, before rising again to 4.4 percent in 2023.
Decreasing Chinese growth rates does not mean that China’s importance for New Zealand will diminish in 2023.
Last week Prime Minister Ardern celebrated the 50th Anniversary of Diplomatic Relations between China and New Zealand, emphasising the importance of collaboration and cooperation.
The West’s relationship with China is evolving. President Xi Jinping has met several world leaders in the past three months. He underscores the need to follow a path of openness and inclusiveness.
Resilience, once again, will be the key word in 2023 as global discussions have been shifting from economic recovery to stagflation.
Strengthening economic relations with China will be one of the key factors for New Zealand’s resilience in 2023.