Cyclone Gabrielle’s devastation of New Zealand’s North Island is likely to exacerbate the nation’s economic slowdown in the near-term while also boosting inflationary pressures, Finance Minister Grant Robertson said.
(Bloomberg) — Cyclone Gabrielle’s devastation of New Zealand’s North Island is likely to exacerbate the nation’s economic slowdown in the near-term while also boosting inflationary pressures, Finance Minister Grant Robertson said.
The cyclone destroyed orchards, vineyards and farm crops in some of New Zealand’s most productive areas, while road, power and communication disruptions mean food processors are currently unable to operate.
“The availability of that food and the cost of it is going be a real impact,” Robertson said Friday in Auckland. “We’ve obviously seen a softening in the economy that’s likely to be exacerbated to some extent.”
New Zealand is projected to slump into a recession from the second quarter as rapidly rising interest rates and a global slowdown curb confidence and spending. The central bank is expected to continue to aggressively tighten monetary policy next week as it seeks to regain control of inflation.
Robertson said the cyclone is sure to have an inflationary impact by making some goods scarce. The rebuilding of damaged regions could also boost economic activity later in 2023, he said.
“It may be that the construction industry actually has more work to do,” Robertson said. “I suspect that will have some influence in the second half of the year.”
The Reserve Bank next reviews the level of the Official Cash Rate on Feb. 22. Most economists expect it to raise rates by a half a percentage point to 4.75%.
It is the RBNZ’s role to assess whether weather-related price changes have a broader impact, Robertson said.
“There’s evidence in the system that we’ve peaked” in terms of inflation, he said. “There is evidence there that we’ve got over that hump, but monetary policy makers face the same uncertainty that we do as fiscal policy makers.”
New Zealand Searches for Missing as Cyclone Death Toll Rises
Speaking separately, Prime Minister Chris Hipkins said it’s clear the nation’s recovery from the cyclone will take some time. The death toll rose to seven Friday and Hipkins said people should brace for the number to climb.
“We will get through this, we will come out the other side of it, but it is an exceptionally challenging circumstance at the moment,” he said.
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