New Zealand Seen Stumbling From One Recession Into Another

2023-06-27 08:58

New Zealand may emerge from recession in the current quarter but it will quickly stumble into another one.

That’s the view of economists at three of the nation’s biggest banks, who predict a second recession beginning later this year.

“Economic momentum has ground to a halt,” said Mike Jones, chief economist at Bank of New Zealand in Wellington. “It looks as if this broad state of affairs will be with us until at least the end of the year.”

BNZ now forecasts the economy will contract in the final quarter of this year and the first quarter of 2024, as does ASB Bank. ANZ Bank New Zealand sees another recession starting in the third quarter. Output is being buffeted by sharply higher home-loan interest rates that have hit consumer spending as the central bank tries to tame inflation.

What Bloomberg Economics Says...

“The full effect of the RBNZ’s 525 basis points of rate hikes has yet to land and will inflict significant pain on households as borrowing costs climb. We see GDP growth slumping to 0.0% in 2023 from 2.7% in 2022.”

—James McIntyre, economist.

To read the full note, click here

Gross domestic product contracted 0.1% in the three months through March after shrinking 0.7% in the fourth quarter of 2022. The mild recession came earlier than many had predicted and reflected the impact on production from flooding and a severe cyclone that struck the nation in February.

BNZ anticipates a slight recovery through the middle of 2023 before a 0.5% contraction in the fourth quarter and a further 0.3% slide in the first three months of 2024.

The Reserve Bank last month projected a recession starting in the second quarter this year, but that was before the first-quarter GDP report.

There are some reasons for optimism. The RBNZ has signaled it’s done raising rates, and the housing market is showing signs of finding a floor.

“Cost and inflation pressures have now crested the peak and are receding, and interest rates have probably peaked too,” said Jones. “But the cost of halting the inflation dragon is becoming more evident.”