New Zealand suffers deeper-than-expected recession; kiwi drops
NEW Zealand’s economy suffered a deeper-than-expected recession in the second and third quarters as high interest rates curbed demand. The local dollar fell.
Gross domestic product declined 1.0 per cent in the three months to September, Statistics New Zealand said on Thursday (Dec 19) in Wellington. Economists expected a 0.2 per cent contraction. In the second quarter, GDP shrank a revised 1.1 per cent compared to an initially reported 0.2 per cent drop.
The New Zealand dollar fell more than a quarter of a US cent after the report, buying 56.23 US cents at 11.20 am in Wellington.
The data are much worse than any forecasters expected, including the central bank and the Treasury, prompting investors to increase bets on deeper interest-rate cuts. The economy is forecast to recover over 2025 now that the Reserve Bank of New Zealand (RBNZ), having tamed inflation, has started to lower the Official Cash Rate (OCR) and consumer confidence is rebounding.
“The economy was very weak in the middle of 2024, as to be expected after a prolonged period of restrictive monetary policy,” said Kim Mundy, senior economist at ASB Bank in Auckland. “Further OCR cuts should help to spur economic growth and limit the risk of doing prolonged damage.”
GDP fell 1.5 per cent in the third quarter from the year-earlier quarter, more than the expected 0.4 per cent decline.
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GDP revisions
Statistics New Zealand made a range of adjustments to the GDP series, revising up previous out-turns so that a previously reported recession in the six months to March 2023 is no longer recorded.
“While the June quarter growth rate has been revised downward, the overall level of economic activity has been revised upward over a longer period,” the agency said.
Still, high interest rates have pushed the manufacturing and service sectors into extended downturns, unemployment is rising and house prices are falling.
Further cooling activity, population growth is slowing as fewer immigrants arrive and more New Zealanders leave the country in pursuit of better jobs and wages abroad.
In November, the RBNZ cut the OCR by 50 basis points for a second straight meeting, taking it to 4.25 per cent, and said a third reduction of that magnitude is likely at its next decision in February.
The main drivers of the third-quarter contraction were manufacturing and construction, today’s report showed.
GDP per capita shrank 1.2 per cent from the second quarter. BLOOMBERG
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