Compared to the same period last year, New Zealand’s economy grew by 2.2 percent, slightly below the median forecast of 2.6 percent. This marks the first recession since 2020 when the COVID-19 pandemic led to the closure of borders and disrupted exports.
New Zealand’s economy has officially entered a recession as the country’s gross domestic product (GDP) contracted in the first quarter, signaling a continuation of the economic downturn that began in the final months of last year. The data released by Statistics New Zealand revealed that GDP fell by 0.1 percent from the previous quarter, following a revised 0.7 decline in the fourth quarter. The contraction was in line with economists’ expectations, highlighting the challenges faced by the country’s economy.
Compared to the same period last year, New Zealand’s economy grew by 2.2 percent, slightly below the median forecast of 2.6 percent. This marks the first recession since 2020 when the COVID-19 pandemic led to the closure of borders and disrupted exports. Finance Minister Grant Robertson acknowledged that the recession was not unexpected given the challenging global economic conditions, persistent inflation, and the impact of weather events on the North Island.
However, opposition finance spokesperson Nicola Willis expressed concerns about the fragility of the economy. Willis pointed out that the economy had contracted despite high levels of inflation, signaling potential vulnerabilities in the system. The cooling of the economy comes after the Reserve Bank of New Zealand implemented rapid interest rate hikes to control inflation. Additionally, the first-quarter GDP was negatively affected by a destructive cyclone that hit the country in February.
The confirmation of a recession comes at a critical time, just four months ahead of the general election scheduled for October 14. The state of the economy, along with the cost-of-living pressures faced by households, is expected to be key issues in the election campaign.
Following the release of the GDP data, the New Zealand dollar depreciated against the US dollar, reflecting market sentiment and concerns about the economic downturn. The Reserve Bank had anticipated 0.3 percent growth in the first quarter, with modest contractions projected for the subsequent quarters. However, the treasure Department revised its forecast in the May budget, withdrawing the projection of three consecutive quarters of contraction. It cited factors such as tourism recovery, cyclone-related recovery work, and government spending as supportive of future growth.
Economists caution that the worst of the economic slowdown may be yet to come. Jarrod Kerr, chief economist at Kiwibank, highlighted that the economy is smaller than expected and predicted further contractions in the coming months. The full impact of the Reserve Bank’s interest rate hikes has not been fully realized, as many households are yet to experience higher mortgage rates. On the positive side, low unemployment rates and a faster-than-expected recovery in tourism, coupled with surging immigration, may contribute to some stability.
The statistics agency identified business services as the main driver of the downward trend in first-quarter GDP, with a significant decline of 3.5 percent. Adverse weather events, including severe flooding in Auckland and Cyclone Gabrielle, also played in the contraction, leading to falls in horticulture, transport support services, and disruptions in the education sector. Household consumption expenditure saw a modest increase of 2.4 percent, primarily driven by higher spending on international travel by New Zealanders, while spending on goods, particularly grocery food, decreased.
As New Zealand grapples with the challenges of recession, policymakers and government officials face the task of implementing measures to stimulate economic growth, address inflationary pressures, and restore stability. The upcoming general election will provide an opportunity for political leaders to present their plans to revive the economy and alleviate the financial burdens faced by households and businesses across the country.