Add Category
New Zealand has entered a recession following bad weather and interest rates rising to a 14-year high.
- New Zealand was struck by two major weather disasters in the first three months of the year
- Stats NZ data shows the country experienced two quarters of negative GDP growth
- Economist Michael Gordon says the economy is in a 'transition phase' rather than 'outright recession'
On Thursday, Stats NZ released data showing the country's economy shrank by 0.1 per cent in the first quarter of 2023.
This follows an 0.7 per cent slump in the last quarter of 2022 — revised down from 0.6 per cent — and banks the country's second recession of the COVID-19 pandemic.
Annual growth remains in the positive at 2.2 per cent, despite downward revisions of 0.1 per cent for the past three quarters.
Two major disasters lashed the country in the first three months of the year.
Auckland suffered major flooding and Cyclone Gabrielle struck vast swathes of the country, destroying infrastructure, homes and productive land.
More than a dozen people were killed, with Treasury estimating a clean-up bill of up to $13.2 billion ($NZ9-14.5 billion).
"The adverse weather events … contributed to falls in horticulture and transport support services, as well as disrupted education services," Stats NZ spokesperson Jason Attewell said.
The recession will come with political consequences for the Labour government, which is seeking a third term in office on October 14.
Within minutes of the GDP figures' release, the opposition National party blanketed their social media with the result, blaming "Labour's economic mismanagement".
Like Australia, the slowdown has been engineered by the Reserve Bank (RBNZ), which raised the official cash rate from 0.25 per cent to 5.5 per cent in the past 20 months.
The RBNZ has relentlessly raised rates at the past 12 meetings, including an unprecedented triple hike of 75 basis points in November.
Headline inflation was last measured at 6.7 per cent in Q1 2023, down from a peak of 7.3 per cent in Q2 2022.
Westpac senior economist Michael Gordon said it was better to think of New Zealand's economy in a "transition phase, rather than in outright recession".
"The results were highly mixed across sectors, with no clear theme emerging behind the GDP decline," he said.
The GDP figure contrasted with forecasts from both the Reserve Bank and Treasury, which had predicted an 0.3 per cent rise in the first quarter of 2023.
Economists were split on their predictions, with major banks tipping a spread of results.
A poll of 18 economists conducted by Reuters produced an average forecast of a 0.1 per cent contraction: right on the money.
"It's clear that the New Zealand economy is losing momentum," Mr Gordon said.
"That's to be expected — indeed it would be staggering if it didn't happen — in light of the substantial rise in interest rates over the last two years."
The biggest drop was in professional services, down 3.5 per cent after a 4.2 per cent rise in the previous quarter.
The education sector (down 1.9 per cent), transport (2.2), manufacturing (1.1) and retail trade (1) also experienced falls.
Agriculture (up 0.6 per cent) made gains, as did media and communications (2.7), finance (1.1) and construction (0.5).
AAP/Reuters