NZ GDP declines (again): Be careful with your KiwiSaver decisions right now.

By Paul de Klerk
KiwiSaver and Investment Specialist

Newly released figures by Stats NZ shows that New Zealand economic activity (Gross Domestic Product - GDP) fell by 0.2% for the quarter ending June 2024.

This is the third time that GDP has declined since the first quarter of 2023. Meanwhile, other countries have grown their GDP, including Australia who posted a 0.2% increase. Canada rose 0.5%, the UK posted a 0.6% rise and the United States showed 0.7% GDP growth.

Why is the change in GDP important to keep an eye on as KiwiSaver investors?

GDP is one of the three most watched statistics produced every three months. It is reported every quarter. Last month the Reserve Bank forecast a 0.5% drop in economic activity in the June quarter so a 0.2% decline is actually an improvement over their forecast. Note that a recession is commonly defined as two consecutive quarters of negative GDP growth.

For right now, this is what I suggest that my clients focus on:

The media in New Zealand are inclined to report any slip into the negative (and often overblow things in my opinion). I expect the media to continue this trend especially with New Zealand now facing a potential third recession in less than two years.

I have previously discussed the varied and generally negative NZ centric information that KiwiSaver members receive (especially via the media). This invariably can negatively influence their decisions about their KiwiSaver investment. The danger is to make long-term decisions based on a short-term environment which can be extremely detrimental to the long term performance of your KiwiSaver.

So to help you make better decisions and to "Be Better Informed", consider the following guidelines:


WHAT HAPPENED THIS YEAR SO FAR:

• In early 2023 the focus shifted to considering whether inflation and interest rate rises had peaked, and when they would start coming back down.

 

• Essentially, markets were switching from being concerned about a recession to looking beyond to opportunities from the inevitable recovery.

 

• However, as is often the case when market cycles change from negative to positive, they go through a transition period where people are in two minds as to whether the positive cycle is definitely underway – climbing a “wall of worry”.

 

• We are approaching the end of this period where inflation and interest rates are moving down.

 

• So this June quarter could be the worst we get before the cycle turns.

OUTLOOK GOING FORWARDS:

• In many countries, the key stages of the business cycle look to be developing concurrently, in a positive way.

 

• Locally however we are lagging. There are four pillars to the NZ economy: Consumer spending, Residential construction, Tourism and Agricultural exports.

 

• Data for consumer activity, business outlook and residential construction is at or below the levels of the 2009 global financial crisis. Urban New Zealand, which is most directly impacted by high mortgage rates, has had a challenging year although reducing interest rates and increased business confidence will assist.

 

• Agriculture is generally positive as export markets for most products were strong. The declines over the latter part of 2022 should improve next year as China consumption starts to rise.

 

• Tourism is back to 80% of pre Covid levels.

SUMMARY:

Remember that markets are forward-looking and will price in a more positive environment (even while the economic data is still disappointing). Do not panic by negative media commentary and reporting.

Economic growth does not need to be booming for markets to be strong. Even in periods of modest economic growth (real rate of 0 to 1.5%) shares enjoy a positive year approximately 80% of the time and for growth in the region of 1.5 to 3.0% share markets are positive 90% of the time.  

The most "dangerous" position for a KiwiSaver to be in is what I call the "Lone Ranger" member. Someone who has nobody they  trust to turn to for guidance before making pivotal and long-term investment decisions.

Don't be a lone ranger. Contact me any time for guidance about your KiwiSaver and investment planning. I am free and very easy to reach.

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Paul de Klerk (FSP110367) is a specialist investment adviser working for the Financial Advice Provider known as De Klerk Business Services Ltd (FSP1005978). For a disclosure statement visit  www.pauldeklerk.co.nz/disclosure