AFP – New Zealand has sunk into its second recession in just 18 months, official data showed yesterday, as wild weather and efforts to tame inflation weighed heavily on the economy.
StatsNZ said output shrank 0.1 per cent in late 2023, after falling 0.3 the previous quarter. New Zealand also suffered a downturn in late 2022 to early 2023.
A recession is commonly defined as two consecutive quarters of contraction.
This time around, the pain is being felt across the board, with many consumers tightening spending and businesses in multiple sectors trimming costs and holding off on new investments.
Economists and investors pinned most of the blame on the central bank, which has aggressively raised interest rates to slow soaring prices.
But the impact of Cyclone Gabrielle and wild weather in the country’s north last year also took its toll.
“They lifted interest rates with a very heavy hand. We warned all those that would listen to us that interest rates were going too high, too fast,” chief economist for Kiwibank Jarrod Kerr told AFP.
“We’ve seen a contraction on the back of it,” he added.
The Reserve Bank of New Zealand’s target interest rate was hiked 12 times from mid-2021, from 0.25 per cent to the current rate of 5.5 per cent. Interest rate rises are designed to cool the economy and ease inflationary pressures or price bubbles, but they can also slow economic activity as money becomes more costly to borrow.
The latest contraction came even though migration surged, with around 130,000 people arriving in New Zealand last year, boosting the population to 5.3 million.
“That highlights just how weak the economy is,” Kerr said.
“We have had the spike in population with a lot of migrants coming here. They have added demand to the economy, and even with that we’re still contracting.”
StatsNZ reported wholesale trade was the largest drag on the economy, led by falls in grocery wholesaling.
