PHOTO: NZ Recession. FILE
Is New Zealand, as ACT leader David Seymour put it, “halfway to a recession”?
The latest GDP figures, released last week, showed New Zealand’s economy shrank by 0.2 percent in the three months to March.
As economist and partner at Sense Partners Shamubeel Eaqub explains, the technical definition of a recession is the economy going backwards for six months.
“Or there’s a more practical definition, which is when people get so scared of doing things, they don’t hire, they don’t invest, and they don’t spend.
“And that collective sitting on hands is really what recession is all about.”
As for what causes a recession, RNZ business editor Gyles Beckford says it’s multifarious.
“Looking back through some of the figures in recent decades. The last prolonged recession we had in New Zealand was from March 2008 through to June 2009.
“That was largely a reflection of the global financial crisis – the way that the housing market started to fall, inflation pressures started to rise, finance companies were failing, overseas influences and the shocks that came with that, that’s the one we noticed the most.”
The most recent recession was in 2020, after the pandemic first hit. Beckford says it wasn’t a surprise given the sheer disruption to economic patterns, behaviour and activity.
There was also a recession at the end of 2010, largely caused by drought.
“You can have recessions of varying types, for varying reasons, and they will hit certain parts of the economy, or the whole economy, to varying degrees.”
Recessions tend to result in an increase in unemployment. When an economy overheats, inflation increases, people aren’t spending as much money, businesses aren’t investing or borrowing as much money and are cutting costs.
Eaqub says New Zealand is relatively well-positioned to weather that storm, given our unemployment rate hovers about 3.2 percent at present.
And Beckford says some economists and academics might consider a recession a necessary period of hurt to curb inflation. With less discretionary spending, there’s less demand for goods and the price drops accordingly.
But Beckford says most economists don’t anticipate a recession in three months’ time.
“It’s not unusual for us to have had the odd quarter of negative growth and then rebound,” he says.
It’s later on in the year that the global economic headwinds are expected to become more noticeable.
“One of the things we should note is, in the past, many recessions have been demand-based – too much demand chasing what was available,” Beckford says.
“A lot of the disruption we’ve been seeing because of Covid has been on the supply side of the economy.
“People say those sorts of disruptions and pressures may be more pronounced as the year goes on. There are some unknowns out there, and one of the biggest is the Ukraine war. We don’t know how long that’s going to last and be an influence on fuel prices, food prices, and how that flows through the global economy.”
Eaqub says while recessions naturally bring with them fear and caution, most people won’t be drastically affected by one.
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