Economic Growth Prospects for December Quarter Diminish

As we approach the end of the year, optimism for economic growth in the last quarter of 2024 is waning. The Reserve Bank's latest projections hinted at a slight uptick in growth, estimating a 0.3 percent increase for the final quarter, but recent economic indicators suggest a different reality.

The situation appears grim when examining two significant economic measures: the BNZ-Business New Zealand Performance of Manufacturing Index (PMI) and the Performance of Services Index (PSI). Both indices indicate a continuous struggle for growth, with the PMI remaining in contraction territory for the 22nd month in a row, while the PSI has shown contraction for the last 10 months.

This ongoing decline raises concerns, as the composite score from the PMI and PSI has also faced a downturn for an entire 10 months. BNZ senior economist Doug Steel expresses that this combined measure underscores potential risks to the previously anticipated positive growth in the December quarter. Steel remarked, "These indicators put some downside risks on our estimates for Q4 GDP and that would suggest that it rounds out a year that has been pretty woeful when you look at the likes of reduction in GDP through the second and third quarters."

Adding to these concerns, the latest statistics from Stats NZ reveal that GDP shrank by 1 percent in September and by 1.1 percent in June, indicating the nation may be entering a significant recession.

Looking ahead, Steel acknowledges that any economic growth anticipated for 2025 would likely emerge from "a weak base." He noted, "There are some other signs that it (GDP) may have edged forward, but these indicators (PMI & PSI) suggest - whether it's a small minus or small positive - it hasn't been flash." While certain indicators, such as business confidence, hint at a potential turnaround, the combined PMI and PSI suggest a slow and perhaps prolonged path towards recovery.

economy, growth, recession