New Zealand’s economy may have contracted for a second consecutive quarter, putting it into recession sooner than the central bank expected.
(Bloomberg) — New Zealand’s economy may have contracted for a second consecutive quarter, putting it into recession sooner than the central bank expected.
Gross domestic product fell 0.1% in the first quarter from the fourth, when it dropped 0.6%, according to the median forecast in a Bloomberg survey of economists. The Reserve Bank predicts 0.3% growth. Statistics New Zealand releases the GDP report at 10:45 a.m. Thursday in Wellington.
“There’s a wide margin of uncertainty around the quarterly result,” said Michael Gordon, senior economist at Westpac Banking Corp. in Auckland. “But the underlying picture is that the economy is cooling off as higher interest rates bite.”
The RBNZ has raised interest rates by 525 basis points at record pace to curb demand and tame inflation, while a devastating cyclone in February disrupted activity in large parts of the North Island. At the same time, unemployment at 3.4% remains near a record low, tourism is recovering more rapidly than expected and immigration is surging.
Of the 16 economists surveyed by Bloomberg, nine predict a first-quarter contraction, five see modest growth and two expect a flat reading. From a year ago, the economy probably expanded 2.6%, according to the survey.
Cyclone Impact
The GDP report should show the initial impact of Cyclone Gabrielle, which destroyed farms and curbed exports and building work when it tore across key food-producing regions in mid-February.
On the other side of the ledger, a record inflow of foreigners is helping to plug labor shortages and may be bolstering demand.
“Strong population growth is an upside risk to aggregate activity,” said Miles Workman, senior economist at ANZ Bank New Zealand in Wellington. “But the per-capita data — that is the economic reality for people on the street — is likely to be much soggier.”
The RBNZ forecasts a shallow recession in the second and third quarters of this year, saying the impact of its tightening on borrowers re-fixing their home loans at much higher interest rates is still to fully impact the economy.
Still, in the May budget the Treasury Department withdrew a forecast for three straight quarters of contraction this year, saying tourist arrivals, cyclone recovery work and government spending would support growth.
New Zealand’s strong labor market is also expected to mitigate the economic downturn.
“By and large, job security is good, nominal wage growth is strong,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “That is a resilient starting point to be in when going into a tough economic climate.”
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