NEW ZEALAND: With its gross domestic product declining by 0.6% in the most recent quarter, New Zealand’s economy is contracting amid predictions of an impending recession.
Following a 1.7% increase in the quarter ending in September 2022, the gross domestic product (GDP) declined by 0.6% in the final three months of 2022. None of the big banks in New Zealand had anticipated the drop at year’s end to be as large as it was. Despite the economy contracting, GDP is still increasing annually, up 2.4% year over year, and unemployment is still relatively low, at about 3.3%.
The finance minister, Grant Robertson, reacted to the numbers by saying: “2023 was always going to be a challenging year. The global economy is volatile and still recovering from COVID impacts.”
“While GDP is likely to move around a bit as we continue to recover from COVID, our economy is nearly 6.7% bigger than before the start of the pandemic, ahead of most countries we compare ourselves with.”
The decline in GDP has exceeded expectations from the reserve bank and the largest private banks, and if it continues into the second quarter of 2023, New Zealand will be about six months into a recession. To be considered “in recession”, it has to report negative GDP growth for two consecutive quarters.
In reaction to high inflation rates, the reserve bank has been taking steps to create a “shallow recession” since late 2022. It has gradually increased the official cash rate, making borrowing more expensive and reducing household spending.
The reserve bank had anticipated a small economic growth this quarter, followed by nine months of recession through the second half of the year. However, the level of GDP contraction this quarter has arrived about six months sooner than it had anticipated.
Craig Renney, an economist with the New Zealand Council of Trade Unions, said the decline called for caution in any future increases to the reserve bank’s cash rate “as growth is declining more quickly than anticipated and further hikes may cause unnecessary economic pain for working people.”
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