New Zealand faces ‘one in three chance of recession’
NEW ZEALAND is at growing risk of recession as the global downturn and surge in energy prices threatens an economy which has not yet had a chance to fully recover from Jacinda Ardern’s strict lockdowns.
Economists at Goldman Sachs warned that there is a one in three chance of the island nation slipping into recession in the next year as interest rates and inflation soar across the globe.
It also cited US GDP data published last week which revealed the world’s largest economy suffered two consecutive quarters of negative GDP growth, the widely accepted definition of a technical recession
If the US enters a formal recession, New Zealand has an almost two thirds probability of following suit, Goldman Sachs said.
New Zealand only fully reopened its borders yesterday after imposing an unusually strict and lengthy set of restrictions when Covid struck.
It has disrupted critical industries by interrupting the flow of students, tourists and business travellers for more than two years.
House prices in New Zealand boomed through the pandemic, with the average property costing around 25pc more at the end of 2021 than it did a year earlier, according to data from the Organisation for Economic Cooperation and Development.
Goldman Sachs said this has potential to make the economy “more sensitive to a downturn in house prices compared to prior episodes”.
Last month the Reserve Bank of New Zealand raised its headline interest rate from 2pc to 2.5pc, its sixth rate increase in a row and the third consecutive jump of 0.5 percentage points.
Officials are battling to control inflation, which hit 7.3pc in June, its highest since 1990.
Until October last year, its rate was still at the 0.25pc record low introduced when the pandemic struck in March 2020.
When raising the official cash rate in July, the central bank warned of serious hazards facing the economy.
The central bank added: “Food and energy prices are especially affected by geopolitical tension. However, the pace of global economic growth is slowing.
“The broad-based tightening in global monetary and financial conditions is acting to reduce spending growth.”
Traders in financial markets expect New Zealand’s central bank to raise its headline rate by another 0.5 percentage points later this month to 3pc, its highest level since 2015.