New Zealand Slips Into Technical Recession

Pedestrians walk near the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, on July 3, 2017. David Gray/Reuters

New Zealand is technically in a recession after the nation’s gross domestic product (GDP) slid into the red for the second consecutive quarter.

Figures released by Statz NZ on June 15 showed that New Zealand’s economy fell 0.1 percent in the March 2023 quarter, following a fall of 0.7 percent in GDP in the December 2022 quarter.

According to the Reserve Bank of Australia (RBA), a technical recession is defined as two consecutive quarters of negative growth in real GDP.

Analysts’ expected a 0.1 percent fall for the March quarter, but that figure went against the New Zealand Reserve Bank’s forecast of 0.3 percent growth, reported Reuters. The Treasury Department had predicted a recession would be avoided.

Meanwhile, the New Zealand dollar fell 0.2 percent to $0.6197.

New Zealand’s finance minister, Grant Robertson, downplayed the news of the recession, saying that it was “not a surprise.”

However, Kiwibank chief economist Jarrod Kerr said the Reserve Bank of New Zealand (RBNZ) had clearly gone “too hard.” “This is an RBNZ-engineered, by design, recession,” he said, reported the Australian Financial Review (AFR).

This follows the admission of the governor of the RBNZ, Adrian Orr, who said in November 2022 that the bank was engineering a recession to lower inflation.

“We are deliberately trying to slow aggregate spending in the economy. The quicker inflation expectations come down, the less work we need to do and the less likely it is that we have a prolonged period of low or negative growth,” Orr said.

Almost Every Sector has Contracted

According to Stats NZ, business services were the biggest downward driver, down 3.5 percent. This was partly offset by a 2.7 percent increase in information media and telecommunications and a 0.7 percent increase in rental, hiring, and real estate services.

“Management consulting, advertising, scientific, and engineering design services drove the fall in business services,” Stats NZ economic and environmental insights general manager Jason Attewell said in a statement.

Transport, postal, and warehousing fell 2.2 percent, manufacturing was down 1.1 percent, and education and training were down 1.9 percent.

Meanwhile, Attewell said the impacts of Cyclones Hale and Gabrielle and teachers’ strikes contributed to falls in horticulture and transport support services, as well as disrupted education services.

“Fewer teaching days led to falls in primary and secondary education services,” he said.

Aggressively Raising Cash Rate to the Highest in Over a Decade

The RBNZ raised the official cash rate from 0.25 percent in October 2021 to 5.5 percent—one of the most aggressive approaches in the developed world.

Comparatively, in Australia, the official cash rate rose from 0.1 percent in May 2022 to 4.1 percent now.

Kerr said New Zealand’s economy had “gone south sooner and faster than expected” and predicted the economy would likely contract further into 2024.

“You might get a bounce in the June quarter, but the second half of the year will be worse than the first,” Kerr said.

Robertson said that the recession fits the definition of a recession “by the barest of margins.”

“But 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,” he said.

Meanwhile, New Zealand’s Opposition finance spokeswoman, Nicola Willis, said that “red lights are flashing” and the economy was worse compared to countries like Australia, Canada, and the United States.

“The New Zealand economy is now incredibly fragile,” she said.

This is New Zealand’s first recession since 2020, when the economy was impacted by lockdowns and border closures.

Rebecca Zhu contributed to this report.