New Zealand has officially entered recession, with the economy shrinking 0.1% in the last quarter.
The economic downturn was exacerbated by the effects of extreme weather that hit the country through February and March, devastating some of New Zealand’s key fruit and vegetable-growing regions and causing extensive damage to the road network, analysts said.
Over the last year, food prices have risen sharply, keeping household spending high. But spending on goods, including groceries, shrank in the last quarter, as households reigned in costs in response to rising interest rates.
A country enters technical recession only when gross domestic product (GDP) shrinks for two consecutive quarters: New Zealand has only narrowly met this criteria, with GDP down 0.1% in the March 2023 quarter, after a 0.7% fall in the December 2022 quarter.
According to Statistics New Zealand, the March 2023 quarter included the initial impacts of cyclones Hale and Gabrielle, as well as teachers’ strikes.
“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services,” said economic and environmental insights general manager Jason Attewell.
Rolling teachers strikes also contributed to the downturn, as “fewer teaching days led to falls in primary and secondary education services”, Attewell said.
Over the quarter there was a 2.4% increase in household consumption expenditure, driven by New Zealanders spending more on international travel.
In contrast, households spent less on goods, particularly food, even as the costs of those foods rose further. According to price index data released on Wednesday, grocery food prices were up by 12.7% compared with the same period the year before, with fruit and vegetables prices increasing 18.4%
The economic contraction has outpaced what New Zealand’s Reserve Bank had anticipated earlier in the year. The bank had forecast 0.3% GDP growth for the March quarter, and for the economy to contract modestly afterwards. The bank had previously said it hoped to engineer a “soft landing” shallow recession as it repeatedly raised the official cash rate in an attempt to slow inflation.
Earlier this week, the International Monetary Fund (IMF) issued its latest assessment of New Zealand’s financial health, saying it was “in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery”.
The IMF said that New Zealand had recovered faster than most other advanced economies thanks to “exemplary management of the pandemic”, but said “generous” government support and investment “came at the cost of overheating”. It predicted the economy would continue slowing in the near future.
