New Zealand's economy falls into a recession following interest rate hikes

New Zealand’s economy has slipped into a recession as a result of interest rate hikes. The country’s central bank, the Reserve Bank of New Zealand (RBNZ), implemented aggressive increases in interest rates, which have had a negative impact on economic growth.

The gross domestic product (GDP) of New Zealand contracted by 0.7% in the previous quarter, followed by a further decline of 0.1% in the most recent quarter. This consecutive decline in GDP for two consecutive quarters meets the technical definition of a recession.

The RBNZ has been proactive in raising interest rates, surpassing the US Federal Reserve and becoming one of the first countries to do so after the pandemic. In fact, the RBNZ raised its main interest rate to 5.5%, aiming to control inflation and manage economic growth.

The consequences of these interest rate hikes are felt by the people of New Zealand, who are now experiencing the impact through increased mortgage repayments and the rising costs of other loans.

The overall rise in borrowing costs has put a strain on households and businesses alike. Additionally, factors such as rising prices, including the cost of essential goods like fuel and food, have further contributed to inflationary pressures and economic challenges.

The adverse weather events, such as Cyclones Hale and Gabrielle, along with teachers’ strikes, have also affected New Zealand’s economy in the first quarter of the year. These events resulted in declines in sectors such as horticulture, transport support services, and disruptions in education services.

Looking ahead, there are expectations that the RBNZ may not raise interest rates further in the near future, as the recent contraction in the economy adds to the notion that the central bank may adopt a more cautious approach to monetary policy.

New Zealand’s economy has slipped into a recession due to the country’s central bank implementing aggressive interest rate hikes, pushing rates to a 14-year high.

Official figures reveal that New Zealand’s gross domestic product (GDP) experienced a 0.1% decline in the first quarter of the year.

The economy’s contraction of 0.7% in the previous quarter, combined with the 0.1% decline in the most recent quarter, signifies that New Zealand is in a “technical recession.”

Since October 2021, the Reserve Bank of New Zealand (RBNZ) has implemented significant increases in borrowing costs.

In the aftermath of the pandemic, New Zealand took an early lead in raising interest rates and has surpassed the US Federal Reserve in this regard. Recently, the RBNZ raised its primary interest rate to 5.5%.

The people of New Zealand, who were already grappling with increasing prices, are now experiencing the repercussions of higher interest rates, leading to a surge in mortgage repayments and the overall cost of loans.

“Interest rates are severely burdening,” expressed David Jordan, a web engineer based in Auckland, in a conversation with the BBC.

Sharing his observations, he added, “Within my industry, I’ve witnessed significant job losses as start-ups aim to reduce expenses, although consultancies collaborating with major global companies seem to be faring relatively better.”

As economies reopened following the Covid lockdowns, central banks worldwide raised borrowing costs in an attempt to mitigate the surge in prices.

The Ukraine war contributed to a surge in inflation, as the escalating cost of essentials such as fuel and food pushed prices higher.

New Zealand’s economy in the first quarter of this year was additionally affected by the occurrence of Cyclones Hale and Gabrielle, as well as teachers’ strikes.

Jason Attewell, the general manager of economic and environmental insights at Statistics New Zealand, stated that “The adverse weather events caused by the cyclones resulted in declines in horticulture and transport support services, along with disruptions in education services.”

A technical recession is characterized by a consecutive decline in an economy for three-month periods, or quarters.

Previously, the RBNZ indicated that it had no immediate intentions for additional rate hikes. With this contraction, the likelihood of the central bank raising rates again in the foreseeable future diminishes further.


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By Ryan

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