What the latest Statistics New Zealand GDP figures might be telling us.
Statistics New Zealand’s publication of GDP for the June Quarter got a lot of media coverage, some of which bordered on the hysterical. To say the figures demonstrated the country was ‘bankrupt’ is a nonsense. Bankruptcy is about debt. Not a single one of the 28 tables SNZ published measured the debt of the nation, so they cannot tell you anything about the nation’s solvency, even metaphorically.
Why the focus on the single GDP number, given that SNZ provided literally thousands of them (although they are all interconnected)? The data is largely irrelevant for those who already know what the problem is: say Nicola Willis or Grant Robertson – or perhaps, as in the case some years back when a Rogernome argued the economy does well when the All Blacks do, we should blame it all on Razor Robertson.
It is never simple to know what is going on. First, how reliable is the estimated decline? There will be revisions. (The released tables are littered with ‘R’s indicating that estimates released in the past have been revised – but not by much. They have to be, unless either new information is ignored or we wait until all of it is in – we’d have to wait over a year.) I doubt that future revisions will be sufficient to reverse the conclusion that the economy contracted in the June 2025 quarter.
Why did the economy contract? Not that long ago the expectation was that the economy would turn the corner by June. If it has, the turn has been downward.
One answer is that it has been in contraction since September quarter 2022. That shifts the question to why we are in a long-term recession. (Here is my most recent discussion.)
Focusing on the last year, SNZ offers a breakdown of production by industrial sector and by types of expenditure which allows us to more than express hysterical shock.
SNZ reports 16 industrial sectors. It would be tedious to go through each, even if we stuck to comparing just two time periods. With three exceptions, all the industrial sectors have been struggling (contracting or growing less than the population) recently. Primary industries have been growing but not booming – as has healthcare and social assistance. The only sector with strong growth has been rental, hiring, and real estate services. The big takeaway has to be that the construction industry is down substantially.
The expenditure sectors tell us something about who businesses are selling their reduced output to. Per capita private consumption expenditure fell 0.3 percent in 2025 June on a year earlier, while general government consumption fell 0.2 per cent. (Local government expenditure has grown strongly, hence higher local body rates.)
It is not possible from the published accounts to explain why household expenditure was weak because the tabulations don’t give the transfers (direct taxes and benefits) between households and government. We know that unemployment is up and real market incomes are falling, but without knowing those transfers we cannot assess to what extent households are raiding their savings and going into debt.
We know that the falling government expenditure is from a deliberate decision by the government to cut its spending (major exceptions are on education and healthcare). Thus the falling production of the professional, scientific and technical, public administration and arts and recreation sectors where government funding is important. The expenditure of nonprofit organisations serving households fell dramatically, probably because the government has been more successful at cutting its funding to them than cutting back on its own activities.
The rest of the world purchases of New Zealand output are reported as exports of goods and services. Exports and the associated sectors have been strong in recent times. There was a falloff in the June 2025 quarter that some attribute to Trump’s tariff policies. His first increases were only implemented in early April; it will take time for their effects to work through. The worst may yet be to come.
Firms are cutting back on their investment, so gross fixed capital formation is down. We saw that in the construction sector, and it will be a source of the manufacturing sector decline since it supplies building materials. The record is that residential building has been falling since 2021 and business investment since 2023, both before uncertainty from Trump’s erratic policy became evident.
The Reserve Bank began hiking nominal interest rates in 2021 and by 2022 they were back to the levels of the 2010s, after having been kept low during the Covid crisis. Interest rates have since been coming down. Even so, they are still higher than the late 2010 levels.
You may have expected from government announcements that capital formation should be lifting rather than falling. However, none of the ‘think big’ projects have got under way and many of the announcements seem to be repackaging older commitments rather than initiating new ones. The government’s freedom to increase public investment is limited by its ambition to get its borrowing and debt levels down.
Business closures seem unusually high. It is possible that we are going through a structural change. That certainly seems to apply to Auckland’s and Wellington’s hospitality industries, although reporting may be exaggerating by focusing on closures and giving less attention to new openings. It may be that our CBDs are contracting, as you would expect in Wellington with the government reducing its public sector – but thus far not by much. If so, why also Auckland? The post-Covid increase of working from home may be a factor. If there is a CBD structural change, landlords may be reluctant to reduce their rents, which would increase the number of empty shops.
More puzzling are the closures of large businesses in the regions – especially those processing local resources such as fish, foodstuffs and trees. Some changes amount to consolidation, relocating the operation elsewhere (which is little consolation to the locals). But there has to be a concern that something more fundamental is going on. One might hope the Minister of Economic Development and two Ministers of Regional Development would commission a report on what is happening – one which focused on the facts rather than sought superficial policy responses.
The focus of this column has been grappling with the facts rather than seizing one and attaching to it some unrelated political demand – like the country was bankrupt and ministers should resign. However, interpretation of facts is always in a framework of a theory; the one used here is the conventional wisdom. And yet the previous two paragraphs leave one uneasy; perhaps there is a more serious problem.
One of the SNZ tabulations compared New Zealand’s GDP change in the year to June 2025 with a selection of other (affluent) economies. It showed that New Zealand’s contracted in the last year while all the others expanded; typically, New Zealand was at least 1.5 percentage points behind. Hence the unease. Perhaps our structural economic policies are quite wrong, or perhaps the future of the New Zealand economy is bleak, irrespective of the quality of the policies.