New Zealand sinks into its 2nd recession in 18 months
Wild weather weighs heavily on the economy
WELLINGTON: New Zealand has sunk into its second recession in just 18 months, official data showed Thursday, as wild weather and efforts to tame inflation weighed heavily on the economy. StatsNZ said output shrank 0.1 percent in late 2023, after falling 0.3 the previous quarter. New Zealand also suffered a downturn in late 2022 to early 2023. A recession is commonly defined as two consecutive quarters of contraction.
This time around, the pain is being felt across the board, with many consumers tightening spending and businesses in multiple sectors trimming costs and holding off on new investments. Economists and investors pinned most of the blame on the central bank, which has aggressively raised interest rates to slow soaring prices. But the impact of Cyclone Gabrielle and wild weather in the country’s north last year also took its toll.
“They lifted interest rates with a very heavy hand. We warned all those that would listen to us that interest rates were going too high, too fast,” Jarrod Kerr, chief economist for Kiwibank told AFP. “We’ve seen a contraction on the back of it,” he added.
The Reserve Bank of New Zealand’s target interest rate was hiked 12 times from mid2021, from 0.25 percent to the current rate of 5.5 percent. Interest rate rises are designed to cool the economy and ease inflationary pressures or price bubbles, but they can also slow economic activity as money becomes more costly to borrow.
‘Deep hangover’?
The latest contraction came even though migration surged, with around 130,000 people arriving in New Zealand last year, boosting the population to 5.3 million. “That highlights just how weak the economy is,” Kerr said. “We have had the spike in population with a lot of migrants coming here. They have added demand to the economy, and even with that we’re still contracting.”
StatsNZ reported wholesale trade was the largest drag on the economy, led by falls in grocery and liquor wholesaling. The retail sector is also struggling with falls in furniture, electrical, and hardware retailing. Vacuum retailer Godfreys announced on Wednesday the closing of all stores across New Zealand and Australia after going into administration. The 90-year-old business is shuttering around 141 stores across the two countries, putting more than 600 staff out of work.
The International Monetary Fund has urged New Zealand to trim government spending to help battle inflation - a move that could also slow growth and put more pressure on the central bank to cut rates. Finance minister Nicola Willis blamed the shrinking economy on the previous centre-left Labor administration, who were voted out in general elections in October. “This is a deep hangover from the big spending, big taxing period under the previous government,” she said. “We’re focused on rebuilding our economy after years of economic mismanagement.”
Prime Minister Christopher Luxon said that as part of a cost-cutting drive, jobs will go in the public sector, with the ministries of health and primary resources among the first to be targeted. “We have to get government spending under control,” he told reporters Thursday. “We have to right-size it. It’s a tough time for people in government
and public service.” Opposition finance spokesperson Barbara Edmonds said New Zealanders have been faced with
a cost-of-living crisis for some time “and are yet to see a single policy from the new government to help them”. — AFP