New Zealand second-quarter GDP expands faster than expected

NEW Zealand’s economy grew more than expected in the second quarter and dodged a technical recession, which will help the current government, under fire for its handling of the economy ahead of a national election.

Official data out on Thursday showed gross domestic product (GDP) rose 0.9 per cent in the June quarter, higher than analysts’ forecasts of 0.5 per cent, and followed a revised 0.0 per cent in the first quarter.

Flat growth in the first quarter means the country was never technically in recession.

Annual growth increased to 1.8 per cent, Statistics New Zealand data showed, above expectations of 1.2 per cent.

The New Zealand dollar hit an intraday high of US$0.5952 before paring gains to be up 0.1 per cent at US$0.5932 following the data. Two-year swap rates jumped 12 basis points to 5.745 per cent, the highest since 2008, but this was likely in part due to the US Federal Reserve decision.

New Zealand’s governing Labour party, which is struggling in the polls three weeks out from the Oct 14 election, was pleased with the turnaround in the economy.

“Our economic plan is delivering a solid foundation to support New Zealanders dealing with the cost of living while investing in our recovery to build a stronger and more resilient economy,” Finance Minister Grant Robertson said in a statement after the release.

However, the stronger-than-expected expansion is likely to worry the central bank, which has said it needs slower growth to dampen inflation and inflation expectations.

That could result in rates being held at their highest in more than 14 years for longer than anticipated, economists said.

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“Present headwinds mean we still expect the pace of activity to slow over the course of the next year, but the continued resilience of the New Zealand economy highlights the risk that OCR (official cash rate) settings will need to remain tight for a prolonged period to get inflation back into target,” ASB economists said in a note.

The Reserve Bank of New Zealand (RBNZ) has been forecasting the economy would slip into recession in the second half of 2023.

The RBNZ has undertaken its most aggressive policy tightening since 1999, when the official cash rate was introduced, lifting it by 525 basis points since October 2021 to 5.50 per cent. It said in May and again in August that it was likely done hiking. REUTERS