NZ economy ‘stretched, straining’ amid fears of recession in US

A recession in the United States wouldn’t directly impact New Zealand but a flow on effect could be felt here through China, one economist says.

Fears of a recession in the US have risen after its economy shrank from April to June for a second straight quarter.

Its economy has contracted at a 0.9% annual pace. It follows a 1.6% annual drop January to March.

In the wake of the news, ANZ chief economist Sharon Zollner told Breakfast the flow-on effect wouldn’t directly impact New Zealand, but would be felt through the impact on China.

She said the US economy isn’t a huge export partner for New Zealand, but explained the country’s most important customer is China and theirs is the US.

This means New Zealand could essentially see an impact through export prices, Zollner said.

New Zealand currency (file picture). (Source: istock.com)

She remarked the US’s 0.9% fall in GDP is “relatively small”, so the “real question” is whether its Federal Reserve would drive it into a “proper” recession next year.

Zollner said similar debates were happening in New Zealand and Australia as inflation is rising fast, consumer confidence is at rock bottom and the housing market is retreating.

People weren’t necessarily slamming their wallets shut though.

Given the world has been watching New Zealand to see where its economy goes, she remarked it was “interesting” the US had delivered two negative quarters in a row first.

It’s “very unlikely” New Zealand would see this due to Omicron disruption in the first three months of this year, which “definitely hit GDP”, Zollner said.

A bounce back in activity from this should prevent the “roller coaster” of two negative quarters in a row.

But this doesn’t mean New Zealand couldn’t see a “hard landing” – recession – further down the track, Zollner said.

“The economy is stretched and straining at the seams and it needs to cool to come to a more sustainable path.”