Buildings in Auckland, New Zealand, on Monday, May 22, 2023.
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New Zealand’s gross domestic product fell 0.1% in the first quarter, according to government data published Thursday, as its 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% decline in the final quarter of 2022.
A technical recession is defined as two consecutive quarters of contraction.
Compared with a year ago, the economy grew 2.9% in the first quarter. Economists surveyed by Reuters expected New Zealand to mark a contraction of 0.1% quarter on quarter and growth of 2.6% year on year.
The New Zealand dollar dropped 0.23% against the U.S. dollar after the release. Stocks were little changed — the S&P/NZX 50 Index traded 0.144% higher.
In its May meeting, the Reserve Bank of New Zealand raised its benchmark rate to a 14-year high, with the 25-basis-point hike lifting its official cash rate to 5.5%.
“There were a range of results at industry level in the March 2023 quarter, with just over half of industries declining in the quarter,” New Zealand’s economic and environmental insights general manager Jason Attewell said.
The contraction was driven by production declines in business services, which fell 3.5%, and transport, portal and warehousing, which was down 2.2%.
During the quarter, New Zealand also saw the “initial impacts” of Cyclones Hale and Gabrielle as well as teachers’ strikes, the data agency said.
“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services,” said Attewell.
Production in the information media and telecommunications and property sectors rose by 2.7% and 0.7%, respectively.
New Zealand also saw a contraction in trade: export prices fell 6.9% and import prices dropped 5.4%.
A ‘policy-induced’ slowdown
“New Zealand’s economy is in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery,” the International Monetary Fund said in a Wednesday mission statement ahead of the GDP release.
The IMF also warned against the central bank turning to monetary policy easing measures, adding that it should still leave the door open for more rate hikes ahead.
“As non-tradable inflation persists, there is little scope to lower the OCR for a prolonged period,” the IMF wrote.
“A reignition of demand, including due to insufficient fiscal consolidation, and a stalling of inflation above target would call for further tightening of monetary policy,” it said.
