New Zealand has now officially entered a technical recession. This is marked by the country’s gross domestic product (GDP) recording a decline of 0.1% in Q1 2023, as disclosed by government data. Coincidentally, the Reserve Bank of New Zealand is in the process of implementing one of the most forceful rate-hike cycles globally.
Previously, New Zealand also reported a revised 0.7% decrease in the last quarter of 2022, which establishes a technical recession, defined by two back-to-back quarters of contraction.
Market Reaction and Rate Hikes
Following the release of this information, the New Zealand dollar depreciated 0.23% against the US dollar. Stock market reactions were rather muted with the S&P/NZX 50 Index trading just 0.144% higher.
The Reserve Bank of New Zealand, during its May meeting, raised its benchmark rate to its highest point in 14 years. With a 25-basis-point hike, the official cash rate was raised to 5.5%.
Declines across Industries
Jason Attewell, New Zealand’s economic and environmental insights general manager, explained that the economic contraction was largely due to a decrease in business services production, which fell 3.5%, and in transport, postal, and warehousing sectors, which dipped by 2.2%.
The first quarter of 2023 also witnessed the initial impacts of Cyclones Hale and Gabrielle as well as teachers’ strikes, which disrupted various sectors including horticulture, transport support services, and education.
Slight Growth amidst Decline
Despite the overall contraction, certain sectors still demonstrated growth. Production in the information media and telecommunications and property sectors rose by 2.7% and 0.7%, respectively.
New Zealand also observed a downturn in trade, with export prices falling 6.9% and import prices decreasing 5.4%.
The IMF Perspective
Ahead of the GDP release, the International Monetary Fund (IMF) noted in a mission statement that New Zealand’s economy was undergoing a required slowdown in the wake of a robust post-pandemic recovery. The IMF urged the central bank to stay open to more rate hikes and cautioned against relying on monetary policy easing measures, given persistent non-tradable inflation.