New Zealand’s economy has officially slipped into recession, with the latest GDP reading reporting a 0.1 per cent contraction over the three months to 31 March 2023.
This followed a 0.7 per cent slide in the December quarter, and comes just three years after the nation’s last technical recession in the March and June quarters of 2020 — the height of the COVID-19 pandemic.
The March quarter result was unexpected, with observers anticipating modest GDP growth. ANZ has forecast a 0.2 per cent increase, driven by a “surge in net migration”.
Contractionary economic conditions have followed aggressive monetary policy tightening from the Reserve Bank of New Zealand (RBNZ).
The central bank has lifted the official cash rate by a cumulative 525 bps since commencing its tightening cycle in October 2021.
Like in other development markets around the world, the RBNZ’s tightening bias has sought to ease inflationary pressures.
According to New Zealand’s latest consumer price index (CPI), annualised inflation eased to 6.7 per cent in the 12 months to 31 March 2023 — still well above the 2–3 per cent target range but below the peak of 7.3 per cent in June 2022.
In its post-meeting statement following its last hike in late May, RBNZ said higher interest rates “are still required” to achieve its inflation target.
“Inflationary pressure continues to be supported by a tight labour market, with employment above its maximum sustainable level,” the RBNZ stated.
“The unemployment rate remained very low at 3.4 per cent in the March 2023 quarter.
“…Overall, high interest rates are still needed to further slow demand. This will help to reduce upward pressure on prices, leading to lower headline inflation.”
But according to New Zealand’s Minister for Finance, Grant Robertson, the March quarter GDP result reflects the impact of the Auckland Anniversary floods and Cyclone Gabrielle, tipped to have cost “hundreds of millions of dollars”.
He said export growth, tourism, returning international students, migration inflows, and government investment would help revive the economy.
“The result was not a surprise. We know 2023 is a challenging year as global growth slows, inflation has stayed higher for longer and the impacts of North Island weather events continue to disrupt households and businesses,” he said.
“Today’s outcome fits the definition of a technical recession by the barest of margins. But the resilience of the New Zealand economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term.
“New Zealand can handle these testing times and grow out the other side.”