Buildings in Auckland, New Zealand, on Monday, May 22, 2023.
Bloomberg | Bloomberg | Getty Images
New Zealand experienced a 0.1% decline in gross domestic product (GDP) during the first quarter, as reported by government data on Thursday. This contraction occurred as the country’s central bank implemented one of the most aggressive rate hike cycles globally.
This latest data from Wellington confirms that the economy has entered a technical recession after recording a revised 0.7% decline in the previous quarter of 2022.
A technical recession is defined as two consecutive quarters of economic contraction.
In comparison to the same period a year ago, New Zealand’s economy grew by 2.9% in the first quarter. Economists had predicted a 0.1% decline in GDP quarter on quarter and a 2.6% year-on-year growth.
Following the release of this data, the New Zealand dollar depreciated by 0.23% against the U.S. dollar, while stocks had minimal change with the S&P/NZX 50 Index trading 0.144% higher.
In its May meeting, the Reserve Bank of New Zealand raised its benchmark rate to a 14-year high, bringing the official cash rate to 5.5%.
“There were varying results at the industry level during the March 2023 quarter, with just over half of industries experiencing declines,” stated Jason Attewell, New Zealand’s economic and environmental insights general manager.
The contraction was driven by a decline in production from the business services sector (down 3.5%) and the transport, portal, and warehousing sector (down 2.2%).
During the quarter, New Zealand also faced the initial impacts of Cyclones Hale and Gabrielle, as well as teachers’ strikes, according to the data agency. Attewell explained, “The adverse weather events caused by the cyclones contributed to declines in horticulture and transport support services, as well as disrupted education services.”
On a positive note, production in the information media and telecommunications sector rose by 2.7%, and the property sector saw a modest increase of 0.7%.
New Zealand also experienced a decline in trade, with export prices falling by 6.9% and import prices dropping by 5.4%.
The International Monetary Fund (IMF) stated in a mission statement before the release of the GDP data that “New Zealand’s economy is currently undergoing a necessary, policy-induced slowdown following its robust post-pandemic recovery.”
The IMF added a cautionary note, advising against the central bank resorting to monetary policy easing measures and suggesting that it should remain open to the possibility of further rate hikes in the future.
The IMF expressed concern that due to persistent non-tradable inflation, there is limited room for a prolonged period of lowering the official cash rate (OCR). It further stated that in the event of renewed demand, insufficient fiscal consolidation, or inflation remaining above target, tighter monetary policy would be necessary.
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