New Zealand Government Consumption (ann. var. %)

GDP contracts by more than expected in the fourth quarter

GDP fell 0.6% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter of 2022, swinging from the previous period’s 1.7% expansion. Downturns in domestic demand and exports were behind the contraction.

Private consumption flatlined in quarter-on-quarter terms in Q4, following a 0.2% expansion in Q3, as souring consumer sentiment and elevated inflation restrained spending. Moreover, public expenditure dropped at a sharper pace of 2.4% (Q3: -0.7% qoq). Additionally, fixed investment shrank, declining 1.9% in Q4, contrasting the 3.8% expansion in the previous quarter amid a bleaker economic outlook and higher interest rates.

In the external sector, exports of goods and services contracted 2.2% in Q4 (Q3: +8.0% qoq) due to a less supportive global economic environment. Meanwhile, imports of goods and services grew 0.6% in Q4 (Q3: +2.6% qoq).

On a year-on-year basis, economic growth decelerated to 2.2% year on year in the fourth quarter from 6.4% in the third quarter.

Meanwhile, momentum is expected to improve but remain subdued during the first quarter of this year. Month-on-month electronic retail card spending swung into expansion in January-February compared to Q4, and the manufacturing PMI moved into expansionary terrain in the same two months. However, business and consumer sentiment remain downbeat, and given tighter financing conditions and a reeling housing market, spending looks set to remain weak.