New Zealand officially in recession as GDP falls for second quarter

The cost of living crisis does make it feel worse even if it only just meets the technical definition.

Come on man, the media have been waiting years to be able to write about NZ being in a recession. Don't take that away from them!

Yeah 0.1% would be within some sort of margin of error, surely.

Further analysis from this morning paints a different picture when you look at it per capita. Down 0.7% per capita and only buoyed up at an aggregate level by net migration.

This is a complex question but the first part is that this is intentional, the RBNZ were aiming for a minor recession. They do this by raising interest rates.

People and businesses get money by borrowing it from the bank. The bank gets it from deposits and borrows it from other banks, but they can also get unlimited money from RBNZ. Since COVID, the banks have been able to borrow money really cheap, at a point we were talking 0.25% interest. This means huge demand for money, because businesses can expand using money they borrow while borrowing is cheap. It also means skyrocketing house prices, because there is a lack of housing supply. Lack of supply means you have to pay as much as you can afford to beat someone else, because there aren't enough to go around. When borrowing money gets cheap, house prices skyrocket.

So the first part of the answer is that the money never really "existed", because banks can get as much as they like at any time. So when someone complains about the government " printing too much money causing inflation ", they may not be wrong, but first you need to check what it is they mean by "printing too much money". Often people think this means the government provided too much COVID support, but I think we should challenge this assumption (though it may be right or wrong).

The next part is "what is GDP"? GDP is a measure of the output of an economy. For example, if I have a company making cupcakes. I might get $2 per cupcake and make a million cupcakes a year, if I can sell them all then that would add $2 million to the GDP. I then take some of my profits, and go to the pub. The pub sells me a (small) beer for $10. That beer came from a brewery up the road, so that adds another $10 to GDP. But note we already counted this money, because I received it selling cupcakes. So GDP is about counting how much money moves rather than how much money total there is.

Now let's say demand for cupcakes overseas goes down. Suddenly I can only sell half as many cupcakes, so GDP goes down. Then I can't afford to keep my staff so I make some redundant. Other industries are having the same problem so they make their staff redundant. People have less income, so they can't buy cupcakes without disposal income. This means profits drop further, and I can't afford a beer. This means the pub closes as there aren't customers. GDP is falling and it wasn't really anyone's fault.

Another scenario is that people think hard times are coming, so instead of buying cupcakes they put their money in the bank to prepare for the hard times. Money in the bank isn't moving through the economy, so this also causes GDP to drop, despite the same money still "existing".

TL;DR: money doesn't really exist, and even if it did, GDP measures the movement of money, not the total amount.

I have surely got some details wrong in this so if anyone is an economics expert, feel free to correct me.

Corrupt politicians and businesses. Same as it every was. Just look at the handling of cyclone relief. Some companies aren't getting any money while companies not even in Hawkes Bay area getting pay outs.

Money for the rich and never for those that actually need it. Bureaucracy at its finest

The fun part where we like to think of money as being this stable measuring stick, but the value of money itself changes.

Didn’t they say that was it when the announced the last hike? The question now is how long they will hold the current rate for.

It isn't, unless you compare against USD. But USD is falling against many other currencies so I'd say it's the USD getting weaker rather than NZD getting stronger.