New Zealand faces triple-dip recession, Westpac predicts

NEW Zealand faces a triple-dip recession as high interest rates curb spending and investment, according to Westpac Banking.

Gross domestic product likely shrank 0.6 per cent in the second quarter and will shrink 0.2 per cent in the third, the bank’s New Zealand economics team said in forecasts released on Tuesday (Aug 6) in Wellington. That would be the third instance of two consecutive quarterly contractions since the end of 2022.

New Zealand’s economy has stalled after the Reserve Bank of New Zealand (RBNZ) rapidly raised interest rates to combat inflation. With the pace of price increases now slowing towards the RBNZ’s 1 to 3 per cent target band, investors are pricing a 25 basis-point rate cut at the Aug 14 monetary policy statement and three more by the end of the year, swaps data show.

Westpac yesterday brought forward its forecast for the start of monetary easing to October from November, predicting the Official Cash Rate (OCR) will fall from 5.5 per cent currently to 5 per cent by the end of 2024.

“We now find ourselves with a noticeably weaker economy and labour market that looks much more likely to push inflation back towards 2 per cent given time,” said Kelly Eckhold, chief New Zealand economist at Westpac in Auckland. “It’s likely to remain tough for businesses and households for the rest of the year but improvement should be evident as OCR cuts hit the bloodstream and give some relief.”

Annual average GDP growth is projected to be 2 per cent in 2025 following 0.2 per cent contractions in both 2023 and 2024, Westpac said. BLOOMBERG