New Zealand's economy contracted in the first quarter, confirming that a recession began in the final three months of last year and sending the local currency lower.
Gross domestic product fell 0.1per cent from the fourth quarter, when it dropped a revised 0.7 per cent, Statistics New Zealand said on Thursday in Wellington. Economists expected a 0.1 per cent decline. From a year earlier, the economy grew 2.2 per cent, less than the 2.6 per cent median forecast.
This is New Zealand's first recession since 2020, when the pandemic shuttered borders and choked exports.
Four months before the general election, Finance Minister Grant Robertson admitted that entering recession 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.
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.
However, opposition finance spokesperson, Nicola Willis, said the economy was now “incredibly fragile”.
"Red lights are flashing for the New Zealand economy, which has shrunk even while inflation rages on," said opposition finance spokesperson Nicola Willis.
The economy is cooling after the central bank hiked interest rates at a record pace to regain control of inflation, while first-quarter activity was also hampered by a damaging cyclone in February. Confirmation of a recession comes four months before a general election on October 14 in which cost-of-living pressures and the economic downturn are sure to feature.
New Zealand's dollar fell after the GDP release. It bought 61.94 US cents at 11:24 a.m. in Wellington from 62.18 cents beforehand.
The Reserve Bank predicted 0.3per cent growth in the first quarter and small contractions in the second and third quarters. The Treasury Department in the May budget withdrew a forecast for three straight quarters of contraction this year, saying tourist arrivals, cyclone recovery work and government spending would support growth.
More to come?
"Our economy is smaller than forecast by the RBNZ and Treasury," said Jarrod Kerr, chief economist at Kiwibank in Auckland. "And the brunt of the slowdown is yet to come. We're forecasting further contractions over the year ahead."
The RBNZ has hiked its Official Cash Rate by 5.25 percentage points in the past 20 months to 5.5 per cent, with the full impact still to be felt as many households have yet to roll mortgages onto higher interest rates.
At the same time, unemployment at 3.4 per cent remains near a record low, tourism is recovering more rapidly than expected and immigration is surging.
Gross domestic product declines
The statistics agency said business services was the biggest downward driver in first-quarter GDP, falling 3.5 per cent.
It said adverse weather events during the quarter, including severe flooding in Auckland and Cyclone Gabrielle, contributed to falls in horticulture and transport support services, and also disrupted education services.
A 2.4 per cent increase in household consumption expenditure was led by higher spending by New Zealanders on international travel. By contrast, households spent less on goods, particularly grocery food.
