We climbed out of a recession, but growth is weak

Published on 24 June 2024

A trifecta of Central Banks gave us a bit of everything last week. From a hawkish RBA to another cut from the Swiss, and a dovish BoE. While at home, it was all about the Kiwi economy’s crawl out of recession. Output expanded 0.2% over the March quarter. And it was a stronger number than we had expected. But scratching below the surface the details were very weak.


Jarrod Kerr

Chief Economist


Mary Jo Vergara

Senior Economist

Sabrina Delgado

Sabrina Delgado


A trifecta of Central Banks

Last week we got a bit of everything from the trifecta of Central Banks who took the stage. The RBA was the first of the three, and left the cash rate unchanged. The RBA’s tone pointed to higher for longer rates. And rate hikes are still a risk, not cuts. Rate cuts remain conspicuously absent from their discussions. For now, the RBA remain “vigilant to the upside risks of inflation”.

Moving further abroad, we saw the Swiss National Bank deliver their second rate cut. Following their first 25bps cut in March, the cash rate now sits at 1.25%. More to come. The SNB is wary of currency strength given the concerns over the EU and Euro. Inflation is not a problem either.

The most interesting of Central Banks last week was the BoE. As expected, the BoE left their cash rate unchanged at 5.25%. The BoE’s tone was rather dovish, however, describing the decision not to cut rates as “finely balanced”. The decision followed a much-loved return to 2% inflation, for the first time since early 2021. But analysts and readers beware. Because most of the drop to 2% has come from the base effects of last year’s energy spike. Services inflation continues to run hot at just under 6%, and core inflation remains above target at 3.5%. Nonetheless, the BoE’s dovish tilt has market traders pricing in a 60% chance of a cut come August.

Crawling out of recession

At home, all eyes were on the release of Stats NZ’s GDP numbers. And the Kiwi economy managed to crawl out of recession… barely. See our full review here. The Kiwi economy expanded 0.2% over the March quarter. It might be a positive print, but the details were weak, very weak.

The headline 0.2% gain was better than we had forecast (-0.1%), and bang in line with the RBNZ’s forecast. But the economy remains very weak. Only half (8) of the 16 industries recorded gains. Construction, manufacturing and business services recorded chunky declines, as expected. That’s not good at all. And weak investment intentions are being felt with a 1.3% pull back on investment. Business investment alone contracted 0.5% over the March quarter.

On a per capita (per head basis) the economy declined 0.3% over the March quarter alone. That’s the 6th quarter in a row of consecutive declines. And compared to this time last year output on a per person basis is down 2.4%. So, we’re still hanging around GFC levels when it comes to per person output.

The heavy hand of the RBNZ is still hurting households and businesses. Restrictive monetary policy is clearly squeezing out demand, and will effectively lower inflation… in time. The next move for rates is down, but the timing is difficult to gauge. The path for policy, and interest rates, will follow the path of inflation. Our forecasts have inflation falling back within the RBNZ 1-3% target band by the September quarter. We’ll see that data in mid-October, and hopefully open the RBNZ up to a rate cut as early as November.

Financial Markets

The comments below were provided by Kiwibank traders. Trader comments may not reflect the view of the research team.

In rates, we’re holding at the very low end of recent ranges

“NZ rates have held at the very low end of recent trading ranges. The top of that range feels unlikely to be found again given the wave of weaker on and offshore data prints, which suggests some further downside to yields and a new range being established soon. Global central banks continue to write the play book of how to ease monetary policy, the BOE seemingly the next to fall with a dovish hold last week while the Swiss National Bank cut another -25bp. The RBA and BOJ are the black sheep amongst the flock with potential hikes. The RBNZ meeting on July 10th is coming into sight quickly, given it’s an MPR expect the policy needs to remain restrictive for a sustained period line to remain…although at the May MPS it was softened with the “sustained” prefix removed!

Last week’s NZ GDP release had little effect on rates market, a small rise in yields on the back of positioning with -32bp of cuts remaining into year-end (-11bp in October). The November meeting is still 5 months away, the PSI data last week a chunky fall adding to the raft of weak high frequency data (PMI, house sales, visitor arrivals). Paul Conway’s speech on inflation a recap of where we are at. His summary on the second slide summed it up – inflation more ‘sticky’ near term but inflation could fall more quickly medium term, therefore policy strategy: balancing these forces.

Given the above expect an element of bouncing around the bottom of recent ranges. Short term we lack domestic catalyst for a shift either way until the 17 July CPI report. Aussie CPI and US PCE data the highlights this week, the former expected to increase the later to decrease! Given the negative accrual from holding received positions in the NZ front end expect an element of curve flattening to remain an overarching theme, while frustrated receivers look to exit short end received positions. However, a steepening of the curve is coming, rates markets will anticipate what’s next after a wave of RBNZ cuts. Long end rates are also towards the bottom of ranges, softening US data and some risks around the French election bubbling under the surface. That balanced by the FED and ECB talking slow and steady which should support long end yields in the short term…i.e. the bottom doesn’t feel like it’s about to drop out of long end yields.” Ross Weston, Head of Balance Sheet – Treasury.

In currencies, investors take a pragmatic view of the Kiwi

“Looking past the better than expected and ‘recession ending’ 1Q GDP number, investors last week chose to take a pragmatic view that all is not well with the NZ economic outlook - seeing the NZ Dollar underperform vs the USD and AUD, whilst at the same time outperforming its European G10 peers. Price action in NZDUSD was largely confined to a 0.61 - 0.6150 range across the week as worries around French politics and dovish central bank activity in Europe saw the US Dollar being the major beneficiary. This week, the focus is squarely on Friday's US PCE numbers to understand if the door may perhaps re-open to a September Fed rate cut. The broader direction for NZDUSD remains largely confined to a 0.5900- 0.6200 range, with 0.61 cents acting as a gatekeeper to both levels. Whilst the PCE data holds the possibility of some decent price action later in the week, key technical levels do remain some distance away. For now, we expect the Kiwi to retain its current ranges with a continued downside bias as time decays toward July’s highly significant 2Q NZ CPI release. Across the ditch, the week ahead sees speeches from Assistant RBA Governors and the release of numbers CPI for May. Following an RBA meeting which certainly maintained a hawkish outlook, a once again underperforming NZDAUD may be put to the test. Finding support around 0.9180/90 post the RBA announcement last week, this area will remain key for a potential attempt to retest the 2024 low at 0.9067. Ultimately, we do see this level breached at some stage given the now rapidly declining high-frequency NZ data prints (such as the recent Consumer and Business Confidence and PSI numbers) which will eventually lead to a breakdown in the NZ Dollar with a now outlier KiwiEconomics forecasted November rate cut call still a potential possibility. Markets will always evaluate the risk vs reward trade, and whilst local consensus is now seemingly falling towards a February cut, risk in our opinion still sits at November - July’s Q2 CPI will be more defining than a very outdated 1Q GDP outcome to this NZ Dollar view.” Hamish Wilkinson, Senior Dealer - Financial Markets.

Key economic data and events

This week, the focus is offshore and all about inflation data - readings from Oz, across Europe, Japan and the US are all due out this week.

Across the Tasman, inflation data is due on Wednesday and will likely show a lift in the headline rate to 3.8% from 3.6% in April. Prices are likely to decline on a monthly basis, but not as large as the fall in May 2023 which is dropping out of the annual calculations and thus resulting in a lift in the annual rate to 3.8%. Upward pressure on housing rents and insurance bills also persisted. An easing in food and fuel prices however likely provided some offset.

US PCE inflation data for May is the main event for financial markets and due out at the end of the week. Declining gas and flat food prices likely helped push down the headline rate to a flat print, a slowdown from the 0.3% pace from the month prior. Core PCE inflation likely slowed to 0.1% - the slowest pace this year - with the annual rate dropping to 2.6% - the lowest since early 2021.

Sweden's Riksbank is expected to pause at its June meeting and keep the main policy rate unchanged at 3.75% before resuming rate cuts in the second half of the year. Stronger underlying inflationary trends, especially in services, will likely mean a steady easing path for Sweden.

Tokyo CPI inflation will likely pick up in a sign that the wage-price spiral is gaining momentum. The headline rate is expected to lift to 2.4% from 2.2%, and the core measure likely rose to 2.1% from 1.9%. Services prices likely rose as firms pass on higher wage costs. The data would suggest a further lift in nationwide core inflation, which is already well above the Bank of Japan's 2% target.



Economic Indicator



Mon, Jun 24


May Merchandise Trade (balance, $mn)




Jun IFO Expectations Index





ECB Speakers - Nagel, Villeroy, Schnabel



Fed Speakers - Waller, Goolsbee

Tue, Jun 25


Jun Consumer Confidence (SA % mom)



ECB Speakers - Stournaras, Nagel



Jun Richmond Fed Manufacturing Index



Fed Speakers - Daly, Bowman, Cook

Wed, Jun 26


May CPI (% yoy)




RBA Speaker - Kent



ECB Speakers - Centeno, Rehn, Panetta, Lane



May New Home Sales (% mom)



Thu, Jun 27


Jun ANZ-RM Consumer Confidence (% mom)



Jun ANZ Activity Outlook (Net % of Firms)




RBA Speaker - Hauser



Release of BoE Financial Stability Report



Jun Consumer Confidence




May Durable Goods Orders (% mom)



Fri, Jun 28


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May Industrial Production (% mom)




May Industrial Production (% yoy, prelim)





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Jun University of Michigan Sentiment




Fed Speakers - Barkin, Bowman