New Zealand: Economy slips into recession

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Apurva Dhamankar

7/12/20232 min read

New Zealand's economy is currently facing challenging times, as indicated by the recent announcement of a recession. A number of factors are contributing to this economic downturn, including a decline in GDP, the impact of natural disasters, the tightening of monetary policy, and the potential implications for the upcoming general election.

New Zealand's GDP experienced a contraction in the first quarter of 2023, with a decrease of 0.1% compared to the previous quarter. This decline follows a revised 0.7% decrease in the fourth quarter of 2022. However, the year-on-year GDP growth of 2.2% fell short of the median expectation of 2.6%.

The first quarter was marred by a damaging cyclone in February, which hindered output and further affected the economy. The disruptions caused by Cyclone Gabrielle and major floods in Auckland contributed to declines in horticultural and transportation support services, as well as disruptions in education services. These adverse weather conditions added to the economic challenges faced by New Zealand during this period.

To curb inflation, the central bank of New Zealand raised interest rates at a record pace. This tightening monetary policy has had a cooling effect on the economy. Although the full impact of the Reserve Bank of New Zealand's 5.25% point increase in the official cash rate to 5.5% has not yet been fully felt, it is evident that the rapid rate hikes have influenced economic activity and contributed to the current recession.

The announcement of the recession comes merely four months before the general election scheduled for October 14. The economic downturn is certain to become a focal point in the election campaigns, with issues such as the rising cost of living and the recession taking center stage. Political parties will need to address these concerns and propose strategies to revive the economy and alleviate the challenges faced by the people.

While the recession and tightening monetary policy have posed significant challenges, there are some positive indicators for the New Zealand economy. Immigration is on the rise, tourism is rebounding faster than expected, and unemployment remains close to a record low at 3.4%. These factors provide a glimmer of hope for future economic recovery.

As the government, policymakers, and citizens navigate through these testing times, it is crucial to formulate strategies that stimulate economic growth and ensure long-term stability for New Zealand.

Thank you.

Regards,

Tanvi Dahanukar,

Kautilya, IBS Mumbai.

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