WELLINGTON, March 14 (Reuters) – New Zealand’s economy may have contracted in the fourth quarter, three months ahead of a central bank forecast, a Reuters poll has revealed, as the market asks whether an 18-month tightening cycle needs to be curtailed.
According to a Reuters poll of 14 economists, gross domestic product (GDP) is expected to contract by 0.2% in the December quarter, well below the Reserve Bank of New Zealand’s (RBNZ) growth forecast of 0.7%.
According to economists, manufacturing, wholesale trade and business activity slowed. The GDP figure will be released on Thursday at 10.45am (Wednesday 2145 GMT).
Craig Ebert, senior economist at the Bank of New Zealand, said an economic slowdown was clear enough to change the starting point of the central bank’s interest rate deliberations.
“You can’t ignore it,” he said.
New Zealand’s Treasury Department and its central bank have forecast that the country will enter recession in the second quarter of 2023.
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RBNZ Governor Adrian Orr said the central bank is trying to create a recession to bring down inflation.
RBNZ raised its official cash rate (OCR) to a more than 14-year high of 4.75% in February and still expects it to peak at 5.5% in the third quarter of 2023.
That would be the most aggressive policy tightening since OCR was introduced in 1999.
Economists said New Zealand’s economic slowdown suggests the economy is not as overheated as the central bank and others thought, but it doesn’t necessarily suggest further monetary tightening isn’t needed.
Michael Gordon, acting chief economist at Westpac New Zealand, said he now expects the RBNZ to hike interest rates by 25 basis points (bps) in April instead of 50 bps.
“If that one big data item is under their forecast by a significant amount, then I think it would lead them to a smaller move,” Gordon said.
Markets are now pricing in an OCR peak of 5.12%, down from 5.38% three weeks ago when the central bank last met. Expectations have fallen partly in line with global markets being hit by the collapse of the Silicon Valley bank.
Severe weather events in the first two months of the year are expected to be a key driver of New Zealand’s economic growth this year as well.
The service sector may have suffered from casualties from Cyclone Gabrielle, ASB analysts said in a statement.
Reporting by Lucy Craymer; Editing by Jamie Freed
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