New Zealand finds itself in the midst of a recession, as recently unveiled official data indicates. The country's economy suffered a setback of 0.1 percent in the first quarter, following a 0.7 percent decline in late 2022. The announcement comes at a critical juncture, just months before a national election, and amid the aftermath of a devastating cyclone that has contributed to a widespread economic downturn.
Acknowledging the country's descent into recession, Finance Minister Grant Robertson stated that the development did not come as a surprise. He cited the challenging circumstances of the current year, including a global slowdown in growth, persistent high inflation rates, and the ongoing disruption caused by severe weather events in the North Island.
The economic consequences of the January flooding in Auckland and the destruction wrought by Cyclone Gabrielle in February have had a significant impact on New Zealand's financial landscape. The government estimates that the cost of cleaning up the damage caused by these extreme weather events could reach as high as NZ$15 million (US$9 million).
This marks New Zealand's first recession since 2020, when the pandemic led to the closure of borders and a decline in exports. As the economy contracts and inflation remains stubbornly high at 6.7 percent, the opposition National Party wasted no time in placing the blame squarely on the government. Opposition finance spokesperson Nicola Willis expressed concern, stating, "Red lights are flashing for the New Zealand economy, which has shrunk even while inflation rages on."
Agriculture, manufacturing, transport, and services have all experienced declines, exacerbating the economic challenges faced by the nation. With an election on the horizon and recent polls indicating a close race between the centre-left Labour government and the opposition National Party, Prime Minister Chris Hipkins is under increasing pressure to address the contracting economy.
In an effort to bolster trade ties, Prime Minister Hipkins has planned a visit to China later this month, recognizing the significant contribution of Chinese businesses, which account for nearly a quarter of New Zealand's export earnings.
Jarrod Kerr, the chief economist for Kiwibank, expressed surprise at the early onset of recession in New Zealand, noting that analysts had not anticipated it. He further predicted that the country's economy would continue to contract throughout the year. As New Zealanders grapple with the challenges of a cost-of-living crisis, Kerr emphasized the need for the Reserve Bank to reverse interest rate hikes in order to alleviate the financial strain faced by households.
"At present, households are experiencing hardship. Budgets are stretched and affected," Kerr added, emphasizing the urgency of the situation.
