New Zealand slips into recession as GDP falls 0.1 per cent in March quarter

New Zealand’s economy slipped into recession on Thursday with first quarter Gross Domestic Product falling 0.1 per cent. This follows a revised 0.7 per cent drop in GDP in the fourth quarter of 2022, technically pushing the country into recession following two consecutive quarters of contraction.

The economy took a severe hit due to measures taken by the country’s central bank to tame inflation, which sent the interest rate soaring to a 14-year high. This had a negative impact on the country’s manufacturing sector. Furthermore, farm production in the country also fell drastically due to bad weather, exacerbating the country’s economic woes.

New Zealand economy hurt by natural disasters

Reuters earlier reported that the economy in the first quarter was hurt by Cyclone Gabrielle and the Auckland flash floods, which caused as much as NZ$14 billion ($8.6 billion) in damage. They reduced farm production, hurt tourism and slowed consumer spending.

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"The adverse weather events caused by the cyclones contributed to fallsin horticulture and transport support services, as well as disrupted education services," Reuters quoted Jason Attewell, economic and environmental insights general manager at Statistics New Zealand, as saying.

Weakness in economy ‘not necessarily negative’

The central bank does not view the weakness in the economy as a negative, as it aligns with its goal of slowing down economic growth to combat inflation and inflation expectations. Economists predict that this contraction will strengthen the belief that the cash rate has reached its peak.

The Reserve Bank of New Zealand has implemented its most aggressive monetary policy tightening since 1999, increasing the official cash rate by 525 basis points since October 2021, bringing it to 5.50 per cent. However, the central bank has indicated that it has concluded its tightening measures.

Prior to the release of the first-quarter GDP data, the central bank had already projected a recession for the second quarter of 2023, while the treasury's updated forecasts in May suggested that the country would avoid entering a recession.

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