NZ in recession: Mixed views on whether it will stick around

Businesses are being plagued by uncertainty at the news of a recession.

The economy has contracted for two consecutive quarters, with gross domestic product falling by a seasonally adjusted 0.1 percent in the three months ended March.

Some small businesses were troubled by the rising cost of food and supplies and being able to afford staff.

In Auckland, Ima Cuisine owner Yael Shochat said it was going to be a tough winter.

"I can get staff. I'm not sure I can afford them. We are cutting hours. We're going to have to shrink a bit.

"I work very hard getting good prices in food. You see me at the vegetable markets lugging crates - there's a reason for that. The only thing we can do is cut workers' hours."

Her restaurant was around the corner from Spark Arena. She thought having the musical Hamilton in town would bring people in.

"I think people went, 'Okay, maybe I can afford a ticket to Hamilton. I definitely can't do a dinner beforehand.' Usually a big event meant we were pumping, really busy, turning people away. It's not what it used to be."

Auckland Business Chamber chief executive Simon Bridges said businesses know it's choppy waters ahead.

"They're facing a range of problems that aren't going away any time real soon. I think the key for business is not to get spooked, to hold their nerve and to focus on the things that they can affect and they can impact."

Employers and Manufacturers Association head of advocacy and strategy Alan McDonald said there was also a recession of business confidence.

"People are just doing it hard."

Auckland had endured one thing after another with an extended pandemic lockdown and poor weather.

It seemed to be taking a long time to recover from the impact of the flood, citing Muriwai only being fully open today, Coromandel Peninsula remaining cut off and access to Northland being still partially restricted.

There were skills shortages for the likes of highly technical people despite the high number of immigrants arriving.

In Wellington, cafe and deli owner Brownyn Kelly had trimmed staff numbers and cut down the menus.

"All our suppliers are getting hit with increases, which they pass on to us. Unfortunately we have to pass some of that back to customers, and yet we know that customers themselves are struggling with the high cost of living, so it's a real catch-22 for us," she said.

"One thing we have noticed, which has been a real relief, is that there are definitely a lot more tourists therefore a lot more job applications. That eases the pressure on another area of hospitality."

Further south, Chris Buckley from Pub On The Wharf in Queenstown was feeling optimistic - he said the tourist town had escaped the downturn.

"We get a few less locals around but we should still see the gaps filled by overseas tourists," he said.

"Things are coming right, and there's a long way to go but we're definitely in the right direction."

That optimism was shared by Canterbury businesses. Canterbury Employers' Chamber of Commerce chief executive Leanne Watson said the labour shortage appeared to be over for most.

"Now, what they've said is that the cost of doing business including compliance costs and those inflationary pressures has become the number one cost. Businesses are really aware of some of those costs that they need to try and reduce in order to actually perform well."

Watson said while businesses were quietly confident about their own prospects, they were concerned by rising costs, higher interest rates and labour shortages.

Small businesses were the hardest hit because they had less ability to absorb extra costs.

With 40,000 small businesses in the region, "we are worried about the ongoing future of those impacts," she said.

Canterbury was lucky to have a diverse economy but there was no doubt that there were some challenges ahead. She was advocating for an environment to allow businesses to grow and be innovative rather than add more compliance costs and red tape "which we've seen an awful lot of in the last three years".

The Council of Trade Unions warned people not to get too caught up in trying to predict if the recession would continue. Economist Craig Renney said the Reserve Bank forecast a further decline in economic growth, while Treasury thought there would be a small increase.

"It is very uncertain at the moment. None of these movements are very large. The honest answer is that the economy is milling around rather than moving significantly up or down."

Renney said more provincial areas of New Zealand may feel economic slowdowns more acutely than the cities.

Falling inflation obvious - economist

Economist and head of research at the BNZ Stephen Toplis described the economy as flat with inflation clearly on the way down - making a rate rise in August, when the OCR is next reviewed, unlikely.

He told Morning Report barring any shocks, the process of falling inflation was well embedded in the economy and the recession was what was required to ensure inflation fell away.

"So that all fits together very nicely in that regard."

While inflation was on a downward slide, the looming removal of subsidies on petrol might cause a spike in one quarter, however, the GIB board crisis was over, the price of timber was falling, the pressure on wage rises would drop as unemployment increased and airlines were saying air fares were likely to drop.

"It's really hard to engineer an environment where inflation doesn't fall here.

"The question ultimately will be and this is probably a question for 12 months' time is does it fall far enough for the Reserve Bank to be comfortable?"

Toplis said the recession was yet to hit the labour market and there would be job losses, but not on the same scale as the 2008 Global Financial Crisis.

The unemployment rate was likely to rise because the supply of labour coming into the country exceeded the demand, he said.

He did not expect a recovery until early 2024 which would tie in with the global cycle.