New Zealand's economy remains stagnant, contracting for the second quarter in a row, down a real 1.0% (vs. consensus -0.4%) on quarter in the July-September period, after shrinking 1.1% (revised down sharply from -0.2%) in April-June and growing 0.3% (revised up from +0.2%) in January-March. The downward revision to the Q2 GDP data made the latest plunge in total domestic output the worst in more than three decades. The Q3 slump was led by business investment in capacity (-2.9% q/q), private consumption (-0.3%) and government expenditures (-1.9%). Net exports exports minus imports were down 0.4%.

It is the country's first technical recession (two consecutive quarters of negative growth) since the first half of 2020 (-10.4% in Q2, -1.1% in Q1), when global demand plunged in the early phase of the pandemic. In the latest GDP data, the economy averted a second straight quarterly downturn in Q1 of 2023 as the previously estimated 0.6% contraction in Q4 of 2022 was revised up to zero growth. But excluding the pandemic period, it is New Zealand's first technical recession in the second half of 2010 (-0.6% in Q4, -0.2% in Q3) and the worst performance since the first half of 1991 (-0.7% in Q2, -2.4% in Q1).

From a year earlier, the gross domestic product plunged 1.5% following a 0.6% drop (revised down from -0.5%) in Q2 and a 1.4% rise (revised up from +0.3%) in Q1. It was firmer than the median economist forecast of a 0.4% decline.

At its last meeting on Nov. 27, the Reserve Bank of New Zealand decided to slash its policy interest rate by 50 basis points to 4.25%, as expected, to shore up economic activity amid easing inflation. It followed a 50-basis point cut to 4.75% in October and a surprise 25 basis point cut to 5.25% in August, its first reduction since March 2020.

The RBNZ's next policy meeting is scheduled for Feb. 19, when it also releases its quarterly monetary policy statement.

Forecasts call for a 0.4 percent contraction on quarter and on the year.

GDP data are a comprehensive measure of a New Zealand's overall production and consumption of goods and services. GDP serves as one of the primary measures of overall economic well-being. GDP calculates the total market value of goods and services produced in New Zealand within a given period after deducting the cost of goods and services used up in the process of production. Therefore, GDP excludes intermediate goods and services and considers final aggregates only. The New Zealand System of National Accounts (NZSNA) is a comprehensive accounting framework based on an international standard (System of National Accounts, 1993).

Gross domestic product (GDP) can be measured using three approaches, namely the production, income and expenditure approaches. The production measure of GDP is derived from firm level data and estimates the value added by all producing industries in the New Zealand economy. The income measure of GDP is derived from earnings data and estimates how the income earned from these producing industries is then distributed throughout the economy as returns to labor, capital and government. The expenditure measure of GDP is derived from data estimating spending on goods and services by final end users and includes consumption, investment and exports minus the value of imports.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.