New Zealand Plunges into Recession Following Consecutive Quarters of Negative Economic Growth
In yet another blow to its economy, New Zealand has officially fallen into a recession after experiencing negative economic growth for two consecutive quarters. Stats NZ revealed that the Kiwi economy contracted by 0.1% in the first quarter of 2023, following a 0.7% slump in the last quarter of 2022. This marks the country’s second recession during the COVID-19 pandemic.
The recession comes at a time when New Zealand has faced significant challenges, enduring two major disasters in the first three months of the year. Auckland grappled with severe flooding, while Cyclone Gabrielle wreaked havoc across the nation, causing destruction to infrastructure, homes, and farmland. The aftermath of these disasters resulted in the loss of more than a dozen lives and a cleanup bill estimated to be between NZ$9-14.5 billion ($A8.2-13.2 billion).
The political ramifications of this recession are unavoidable, as the Labour party gears up for the upcoming general election on October 14th, seeking a third term in office. However, the recession is not merely a product of natural or political crises. The Reserve Bank of New Zealand (RBNZ) has played a significant role in engineering the economic slowdown. Over the past 20 months, the RBNZ has raised the official cash rate from 0.25% to 5.5%, implementing relentless rate hikes, including a triple hike of 75 basis points in November.
Furthermore, inflation has been another issue plaguing the New Zealand economy. Q1 2023 saw headline inflation at 6.7%, albeit a decrease from the peak of 7.3% in Q2 2022. The RBNZ and the Treasury had both forecasted a 0.3% rise in economic growth for the first quarter of 2023, making the actual contraction of 0.1% a surprise to economists. A Reuters poll of 18 economists had predicted an average contraction of 0.1%, showing a range of expectations.
Meanwhile, neighboring Australia has also received a warning of impending financial collapse. Matt Barrie, founder and CEO of Freelancer.com, has drawn parallels between Australia’s current economic climate and the housing bubble that led to the 2008 US economic crisis. Barrie cited rising living costs, increasing interest rates, and skyrocketing mortgage repayments as indicators of a potential economic meltdown in Australia. He emphasized the role of immigration in sustaining the housing market and the economy, claiming that the country is relying on importing more people to drive demand and prop up GDP growth.
As both New Zealand and Australia face economic uncertainties, it is crucial for policymakers and authorities to consider proactive measures to mitigate the impact and prevent any further deterioration of the financial landscape.
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