New Zealand slips into recession after interest rates hike

New Zealand’s economy has fallen into recession after the interest rates reached a 14-year high. The GDP has fallen by 0.1% in the first three months of 2023 followed by a 0.7% contraction in the previous quarter, which means the country is now in a “technical recession.”

The Reserve Bank of New Zealand (RBNZ) increased the cost of borrowing sharply in October 2021. New Zealand was one of the first countries to start increasing rates since the pandemic and has even outpaced the US Federal Reserve. Last month the bank increased the main interest rates to 5.5%

The people in New Zealand, who were already grappling with increasing prices, are now experiencing the consequences of elevated interest rates, leading to higher mortgage repayments and increased costs for other loans. Earlier, the RBNZ signalled that it had no further plans for further hikes. The contraction adds to expectations that the central bank will not raise rates again in the foreseeable future.

New Zealand’s economy took hits from many different areas, in the first three months of the year, the economy was impacted by teachers’ strike and Cyclones Hale and Gabrielle. Inflation was also impacted by the Russia-Ukraine war, making the cost of everything from fuel to food, rise.

“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services,” Jason Attewell, economic and environmental insights general manager at Statistics New Zealand said in a statement.

The areas that took the biggest hit were business services, down by 3.5%, and postal, warehousing, and transport down by 2.2%. Media and telecommunications, on the other hand, went up by 2.7%

However, while the recession remains technical after two consecutive quarters of contraction, it has become a significant political issue as New Zealand heads towards an election in October, with voters struggling with higher living costs.