- Economists polled by Reuters had expected New Zealand to mark a quarter-on-quarter decline of 0.1 percent quarter-on-quarter and growth of 2.6 percent year-on-year.
- In its May meeting, the Reserve Bank of New Zealand raised its benchmark interest rate to a 14-year high, with the 25 basis point increase lifting the official cash rate to 5.5%.
Buildings in Auckland, New Zealand, Monday, May 22, 2023.
Bloomberg | Bloomberg | Getty Images
New Zealand’s gross domestic product fell 0.1% in the first quarter, according to government data published on Thursday, as the central bank embarked on one of the most aggressive rate hike cycles in the world.
The latest data from Wellington marks a technical recession for the economy, after reporting a revised 0.7% contraction in the last quarter of 2022.
A technical recession is defined as two consecutive quarters of contraction.
Compared to a year ago, the economy grew by 2.9% in the first quarter. Economists polled by Reuters had expected New Zealand to mark a 0.1% quarter-on-quarter decline and 2.6% year-on-year growth.
The New Zealand dollar was down 0.23% against the US dollar following the release. Stocks were little changed — the S&P/NZX 50 index traded 0.144% higher.
Refinitive, Statistics New Zealand
In its May meeting, the Reserve Bank of New Zealand raised its benchmark interest rate to a 14-year high, with the 25 basis point increase lifting the official cash rate to 5.5%.
“There were a range of industry-level results in the March 2023 quarter, with just over half of industries down in the quarter,” said Jason Attewell, managing director of Economic and Environmental Insights New Zealand.
The decline was driven by production declines in business services, which fell 3.5%, and transport, portal and warehousing, which fell 2.2%.
During the quarter, New Zealand also saw the “first impacts” of cyclones Hale and Gabrielle as well as teacher strikes, the data agency said.
“The adverse weather events caused by the cyclones contributed to a drop in horticulture and transport support services, as well as disrupting education services,” Attewell said.
Production in information media and telecommunications and property increased by 2.7% and 0.7% respectively.
New Zealand also saw a decline in trade: export prices fell 6.9% and import prices fell 5.4%.
“New Zealand’s economy is in the midst of a necessary, policy-induced slowdown after the strong post-pandemic recovery,” the International Monetary Fund said in a mission statement on Wednesday ahead of the GDP release.
The IMF also warned against the central bank turning to monetary policy easing, adding that it should still leave the door open for more interest rate increases in the future.
“As non-tradable inflation persists, there is little scope for lowering the OCR over an extended period,” the IMF wrote.
“A resumption of demand, including due to insufficient fiscal consolidation, and a halt in above-target inflation will require further tightening of monetary policy,” it says.