Bulletin: Room to breathe – but not to relax


The latest updates from Statistics New Zealand have shifted our expectations, and humbled many respected economists and thought leaders. If you've read our most recent article you'll know why we consider ourselves in that camp.

The news:

  • GDP grew by 1.7 percent
  • expenditure on GDP rose 2.1 percent
  • service industries rose 2.7 percent
  • primary industries rose 0.2 percent
  • real gross national disposable income and annual GDP to June 2022 both rose 1.0 percent
  • current price expenditure on GDP rose 3.4 percent.

All the signs were pointing to a second quarter of decreased economic activity, and yet, here are statistics that show otherwise. Quarterly stats like this are lagging metrics, not leading, and the reality today may be different. (We can only infer the state of things today.) And we are not immune to the global macroeconomic situation either. Times are volatile. Consumer demand in overseas markets such as the EU is taking a severe hit due to escalating energy prices.

But for now, we can perhaps breathe a little.

Look further into these and other figures in the latest report, and you'll start to see why conversations up to now have been, perhaps justifiably, less optimistic. With goods-producing industries (manufacturing, construction, energy, water, and waste services) experiencing a 3.8 percent fall this quarter, the complex picture of a K-shaped economic recovery starts to become clear.

In March 2021 we anticipated this type of recovery, with different markets – and even different businesses within each market, we've discovered – bouncing back at different rates. We expected construction to remain strong, both due to the long-term nature of projects, as well as the reliance on local workers operating at most alert levels. Tourism understandably suffered with a lack of travellers and limited close contact, however Queenstown is now enjoying levels around 80 percent of what they were in 2020.

Over the last quarter, the figures support the K-shaped analysis. Transport, postal, and warehousing enjoyed a 19.7 percent growth; manufacturing dropped 5.9 percent. The Real Estate Institute's latest report indicates that, after the housing market went gangbusters in 2021, the house price index fell 5.8 percent for the year ended August 2022. We can expect to pay 8.3 percent more this year for the same groceries; food prices now account for about 20 percent of our consumer spending.

Our interpretation of the current – and future – economic situation turns to two factors.

The first is the economic stimulus and investment in infrastructure by the current government. Spending on public goods – such as transportation, power, water, roading, healthcare – is a popular and often productive move; it benefits everyone, and the impact is usually clearly visible. These can also help close the output gap (i.e. the gap between the actual economic output and the potential GDP), and impact the so-called multiplier effect (where people who are paid more go on to spend more, cycling up the economy). Additionally, the support throughout Covid has been economically beneficial for many businesses, keeping doors open during this time. It's not been without its fair criticism, but the positive impacts have also been clear. This has paved a good path for us to follow going ahead.

The second point is that organisations can still run out of cash, even without a recession. There is no reason to dent our confidence at this time; a positive quarter gives us a chance to reflect, take stock, and double down on strategic and operational excellence while we have the chance. In our last article, we noted that consumers are expected to choose to spend differently. The latest figures suggest that the ‘lipsticks' have certainly started to shift. We can expect some cautious buoyancy across the markets with the news of a positive GDP – and, potentially, an uneven upshoot of demand. But those who don't yet have the cash to buy stock or finance the next cycle will risk declining, even in a growing or steady market. We've seen it happen in previous downturns. It doesn't need to happen to you this time.

As you start planning for the end of the year, the best thing you can do is to make the move towards improving business relationships, shoring up your team, and developing a strategic position that your current and future clients can't deny. We also remind you to scrutinise the performance of individual industries and markets, and avoid using a single figure (like the GDP) to inform your decisions or to trigger business decisions.

Get yourself in the right position to enter 2023 with confidence and a plan to own your market. This is what it means to look at what you can control: your own organisation, on your own terms.

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