The New Zealand economy slides into recession in the face of high interest rates and storm damage

Published: Jun 14, 2023 at 7:10pm ET

By James Glynn

SYDNEY – New Zealand’s farm-based economy slipped into recession for the first three months of this year as rising interest rates and the aftermath of a hurricane that devastated the North Island caused economic activity to contract for a second straight quarter.

The economy contracted 0.1% in the quarter and grew 2.2% year-on-year.

By James Glynn

SYDNEY – New Zealand’s farm-based economy slipped into recession for the first three months of this year as rising interest rates and the aftermath of a hurricane that devastated the North Island caused economic activity to contract for a second straight quarter.

The economy shrank 0.1% in the quarter and grew 2.2% year-on-year, Stats NZ said on Thursday. The weak first-quarter results were followed by a 0.7% decline in the fourth quarter of last year.

The slowdown in the economy has led the Reserve Bank of New Zealand to recently signal that monetary policy could be tightened. The official cash rate is now 5.50%, the highest level in more than 14 years.

Still, the central bank has also warned that inflation is likely to remain elevated for some time and rules out short-term rate cuts.

Cyclone Gabrielle, which caused widespread flooding and killed 11 people in February, reduced spending and housing activity in the neighborhood. However, the recovery operation is expected to support growth in the second quarter.

The most recent government budget earmarked NZ$1.1 billion (US$687 million) to fund post-cyclone recovery. The total cost of the disaster is estimated at up to NZ$14.5 billion.

Migration to New Zealand is recovering rapidly and tourism, a key economic driver, is recovering from the disruptions of the Covid-19 pandemic.

Areas of weakness in the economy in the first quarter included services, transport, manufacturing and education, the statistician said.

Write to James Glynn at [email protected]