New Zealand (commonwealth)_It appears that New Zealand’s economy has experienced a slight downturn and entered a recession, as indicated by recent figures released on Thursday. In the first quarter of the year, the country’s gross domestic product (GDP) fell by 0.1%, following a revised 0.7% decline in the previous quarter. According to New Zealand’s definition of a recession, this consecutive negative growth fulfills the criteria.
The slowdown can be attributed to the series of interest rate hikes implemented by the country’s central bank in an attempt to manage inflation. Over twelve consecutive increases, the benchmark interest rate reached 5.5%, its highest level since 2008. As a result, borrowing money for homes, cars, and other purchases has become more expensive. However, the Reserve Bank of New Zealand has indicated that it does not intend to raise rates further for now, with a potential rate cut being its next move.
While the recent downturn aligns with economists’ expectations, it is worth noting that the overall economic performance for the year remains positive. New Zealand’s economy grew by 2.9% over the course of the year, driven by strong growth in the first two quarters. Moreover, the dip in the March quarter was relatively small, leaving room for the recession classification to be revised in the next quarter when the latest figures are updated.
It’s important to consider some factors that contributed to this situation. Adverse weather conditions and resulting flooding caused significant damage and disruption, particularly across the North Island, as mentioned by Statistics New Zealand. Within specific sectors, business services experienced a decline of 3.5%, and transport, postal, and warehousing saw a decrease of 2.2%. However, there was a positive note with media and telecommunications, which saw a rise of 2.7%.
One noticeable impact of the higher interest rates has been observed in the housing market. Over the past 18 months, average house prices in New Zealand have decreased by approximately 18%. Nevertheless, recent statistics indicate that prices have remained stable compared to the previous month, and sales volumes have shown signs of improvement in certain areas, suggesting that the market may have reached a low point.
Economists from Kiwibank, Jarrod Kerr, and Mary Jo Vergara, have expressed their concern that the central bank raised rates excessively and anticipate further contraction in the economy over the coming year. They highlight that reduced household spending, which is already being observed, and decreased business hiring and investment could lead to a more significant economic contraction.
Remember, while the recent news may present some challenges, the New Zealand economy has shown resilience in the past, and there is potential for improvement as the situation develops further.
