There’s a lot riding on this week’s quarterly gross domestic product result.
Another downward surprise will officially tip the NZ economy into recession given that the previous quarter recorded a negative result. And if the latest reporting season is anything to go by that outcome remains a distinct possibility.
Apart from last year’s upside surprise for the June quarter, the most recent quarterly GDP numbers reflect an economy that is idling at best or beginning to haemorrhage at worst.
| Quarterly GDP | Change on prev quarter |
| Dec ‘22 | -0.7% |
| Mar ‘23 | unchanged |
| Jun’23 | +0.9% |
| Sept ‘23 | -0.3% |
| Dec ‘23 | ? |
In a recent update to clients, brokers Forsyth Barr noted that the current reporting season about to conclude was “one of the worst on record” and goes a fair way to explaining why the New Zealand sharemarket performance compared with the rest of the world has been so abysmal recently.
Perhaps more concerning was their point that the rate and magnitude of earnings downgrades for 2024 “now rivals that seen in 2009” at the height of the global financial crisis.
After the shock of the GDP print for the September quarter, all eyes will be on the numbers for the December quarter this Thursday to see if there has been a further deterioration in the country’s economic performance.
“In the wake of record breaking migration growth, we were all stunned to see the economy contract 0.3 percent in the September quarter. On top of that, there were massive downward revisions to history,” Kiwibank chief economist Jarrod Kerr noted in his preview of this week’s announcement.
“The technical recession we had over the Dec22-Mar23 summer, that was technically revised away, was then revised back in. And all up the Kiwi economy was shown to be nearly 2 percent smaller than economists, including the RBNZ, had believed it to be.”
But as more data has come to light, Kerr says he is now expecting economic growth was likely flat over the December quarter, thereby avoiding another technical recession. The RBNZ is expecting much the same.
“Regardless of whether or not we were ‘technically’ in a recession, flat growth is still not a pretty result. A flat print would mean the Kiwi economy was completely stagnant since this time last year. And in the year ended December 2023, we’re expecting growth of just 0.7 percent.”
Kerr also points out that things look even uglier if you consider the economy’s growth on a per capita (per person) basis which shows we are already in a recessionary environment. In the September quarter alone, GDP per capita contracted 0.9 percent and a painful 3 percent decline over the year.
“Last year likely ended on the same sour note. Aggregate output may be unchanged, but for the average Joe or Jane, the numbers will likely show a shrinking slice of the economic pie. So, on the ground, it will still feel like a recession.”
Kerr expects this week’s data will reveal weakness across the board.
“We are expecting the goods producing industry to continue in decline as manufacturing remains a sore spot and a still-lukewarm housing market weighs on construction. Activity within the primary production industry is also expected to be weak. Meanwhile, service industry also continues to be weighed down by businesses and households that continue to pull back.”
However, Kerr also points out that the weakness we are all seeing and feeling is all by RBNZ design which leads to the big question on when the central bank will finally pull the trigger on interest rate cuts.
“The RBNZ needs to see subdued growth in their fight against the inflation beast. And subdued growth is what they’ll see. The RBNZ’s heavy hand has hurt households and businesses. Restrictive monetary policy is clearly working. So long as interest rates remain elevated, growth will remain subdued. And that is the outlook for the majority of this year.
“But the silver lining is that we see the RBNZ being in a position to deliver rate cuts from November. Once the interest rate settings are relaxed, confidence among households and businesses should build and the economy should regain momentum into 2025.”
BNZ chief economist Mike Jones agrees the outlook looks more favourable than the present situation.
“There remains considerable noise in the quarterly data, such that we certainly wouldn’t rule out the possibility of another negative quarter in GDP itself. But the difference between -0.1% or +0.1% is well within the margin of error. Beyond the decimal points, growth looks well below potential such that we believe the output gap is becoming more negative. This will support inflation falling further. That remains the bigger picture.
“Based on what we are seeing now, it encourages us in our belief that growth will return to the economy in the latter part of this year. Nonetheless, the data are still sufficiently soft for us to assume further contraction in manufacturing in Q1 of this year.”
Brace for impact this Thursday. A downward surprise will likely roil markets and push the NZ dollar lower after the kiwi eased 1.5 percent last week to close at 60.8 US cents.
Potential takeover targets on the rise
Former NZX-listed software developer Task Group (previously Plexure Group) which transferred its primary listing to the ASX in 2022 is now the subject of a $310m takeover offer by US-based PAR Technology by way of a scheme of arrangement.
PAR is a global restaurant technology company with hardware, software, loyalty, drive-through and back-office solutions implemented in more than 70,000 restaurants across more than 110 countries.
Task has specialised in developing integrated point-of-sale (POS) terminal management services, as well as real-time sales data and interactive customer engagement for hospitality venues including stadiums and casinos.
Under the terms of the takeover bid, Task shareholders could receive a cash consideration for their holding at a price of $0.81 per share, representing a 103 percent premium to the closing price of $0.40 per share on March 8.
The Task Group board has unanimously recommended shareholders vote in favour of the takeover based on perceived certainty of value from the cash consideration and potential for additional future value from the mixed option of both cash and shares in PAR.
The announcement follows the recent acquisition of another listed technology company, MHM Automation, by US-based Bettcher Industries in November after the food processing and packaging equipment manufacturer announced it had been offered $1.70 a share by Bettcher – an 87 percent premium on its then trading price.
MHM had been one of the NZX’s oldest listed companies, tracing its history back to 1959 when it was known as Broadway Industries.
Expect offshore bargain hunters to swoop on a few more locally listed tech companies this year given the weaker NZ dollar further eroding what is already a shrinking number of companies listed on the NZX.
Tesla and Apple fast losing their shine as sales plunge
Having been considered part of the so-called Magnificent Seven stocks in the US, both Tesla and Apple suffered serious setbacks last week that suggest their days of explosive sales growth may be fast coming to an end.
Recent data showed sales in China of Apple’s iPhone fell by 24 percent in the first six weeks of 2024 compared with 2023 sent investors into a tailspin and has seen Apple’s share price fall to a five-month low.
During the same period, China’s leading mobile phone producer, Huawei, saw sales jump by 64 percent in its home market.
China, which is one of Apple’s biggest markets, also saw overall smartphone sales shrink by 7 percent in the same period.
And on Friday, Apple reached a US$490m settlement to resolve a class-action lawsuit that alleged chief executive Tim Cook defrauded shareholders by concealing falling demand for iPhones in China.
The action stemmed from Apple’s unexpected announcement in January 2019 that the iPhone maker would slash its quarterly revenue forecast by up to $9 billion, blaming US-China trade tensions.
Two months earlier, Cook had told investors on a November 2018 analyst call that although Apple faced sales pressure in markets such as Brazil, India, Russia and Turkey, where currencies had weakened, “I would not put China in that category.”
Apple told suppliers a few days later to curb production.
The lowered revenue forecast was Apple’s first since the iPhone’s launch in 2007. Shares of Apple fell more than 10 percent the next day, wiping out US$74b of market value.
Tesla shares fell to a 10-month low on Friday after a new report warned shareholders of zero-growth over the next 12 months.
It’s been an ignominious fall from grace for the automaker once touted as the future of automaking after revelations last week that the company was the worst performer so far this year in the US’s benchmark S&P500 index of listed companies.
Tesla has been plagued by safety issues and recalls and slowing growth, and has even been forced to slash prices. But a new report by analysts at US banking group Wells Fargo paints a darker picture than previously imagined.
Tesla is a “growth company with no growth” the report stated.
It predicted that Tesla’s growth will remain flat this year and then decline in 2025 as competition increases, deliveries disappoint and the beleaguered auto and tech company is forced to cut prices yet again.
UBS also downgraded its forecast for Tesla. Analysts said concerns were mounting as demand for electric vehicles (EVs) slowed and as Chinese rivals took an ever greater share of the global market.
In the final quarter of 2023, BYD, a Chinese EV manufacturer, surpassed Tesla as the world’s biggest producer of purely battery-powered vehicles, selling 526,000 of them to the American firm’s 484,000, a trend analysts say it is only likely to increase as BYD continues to increase production squeezing Tesla even further.
Oil prices climb as supply tightens and demand grows
Expect to pay more at the pump next time you fill up after oil prices finished the week at four-month highs as the International Energy Agency warned of a tighter market in 2024 and raised its view on oil demand growth this year.
Brent crude oil futures for May climbed 4.2 percent for the week to settle at US$85.42 a barrel, its highest close since early November.
The IEA raised its view on 2024 oil demand growth for a fourth time since November as Houthi attacks disrupt Red Sea shipping but also warned that “the global economic slowdown acts as an additional headwind to oil use”.
The energy watchdog forecast demand will rise by 1.3 million barrels per day in 2024, up 110,000 bpd from last month, but still lower than growth of 2.3m bpd last year.
The IEA also cut its 2024 supply forecast and now expects oil supply to rise by 800,000 bpd to 102.9m bpd this year.
Analysts say the slowing demand for electric vehicles is also boosting the outlook for oil prices.
Coming up this week …
Tuesday
- KMD Group – half year result
Wednesday
- Warehouse Group – half year result
- Balance of Payments (Dec) – RBNZ
Thursday
- Fonterra – half year result
- Gross Domestic Product (Dec Qtr) – Stats NZ
- Credit Card spending (Feb) – RBNZ
- Housing Data (M10 – Feb) – RBNZ
- Consumption (M2 – Feb) – RBNZ
- Prices (M1 – Feb) – RBNZ
Friday
- Overseas Merchandise Trade (Feb) – Stats NZ
I wonder how many person-hours will be spent by conventional economists, bankers, and politicians as they attempt to account for wobbling financial markets and adverse GDP figures. There are comically irresistible parallels here with phlogiston theory in protochemistry, or the Earth-centric universe of Ptolemy’s cosmology; both had some limited predictive power but were increasingly inadequate when more information became available. Finally they were seen to be ludicrous.
With regards to economic forecasting, all our number-crunching and detailed market analysis is simply barking up the wrong tree in the wrong forest on the wrong continent. Were we not so wrapped up in our delusions, it would surely be obvious: what we grandly call the global economy is merely a self-serving name for the ecological niche of a species that chose to call itself Homo “sapiens”.
The economy is an energy system, not a financial one. We’ve used up the most accessible sources of energy (and irreversibly damaged the climate in doing so).
EROI diminishes from here on, and the cost of adverse weather events rises. It’s downhill from here. That may be heresy to the business mind, but the laws of physics don’t care about human delusions. It’s rare for economists to be science-literate, but Dr Tim Morgan outs it very well:
“The underlying presumption here is cyclicality, a process accepted as routine, not just by policy-makers and central bankers, but by investors, business leaders and the general public alike. It is well understood that the Big Numbers – like economic output, and the aggregate value of the markets – oscillate in sine-wave patterns around central trends.
It’s further assumed that these secular trends are always positive – each recovery exceeds the preceding recession, and each market rebound more than cancels out the latest dip.
This latter assumption has reached the point of invalidation. What economies and markets are now experiencing is trend-inflexion. Cyclicality may indeed continue but, from here on, it will do so around downwards-inflected trends. This process of reversal can only be managed if it is recognized.”
https://surplusenergyeconomics.wordpress.com/2022/11/22/243-the-great-inflexion/
Can humans face that reality? Or will we continue to delude ourselves? If the latter, we’ll likely see increasing bitterness and polarisation, blame-deflection, and a drift towards autocracy. That risk is recognised by military planners, for example in a recent report by the USA’s Directorate of National Intelligence titled: “Global Trends 2040”. Looking to the 2030s and 2040s, it sees a world ravaged by climate change, which will disrupt food supplies, result in the hoarding of food and a global famine that will result in widespread civil unrest and propel mass migration.
https://www.dni.gov/files/ODNI/documents/assessments/NIE_Climate_Change_and_National_Security.pdf
p. 118 et seq: “A wave of unrest spreads across the globe, protesting governments’ inability to meet basic human needs and bringing down leaders and regimes.”
https://www.dni.gov/files/ODNI/documents/assessments/GlobalTrends_2040.pdf