New Zealand Economy Contracts Unexpectedly in Q3
The agriculture-rich economy of New Zealand has experienced an unexpected contraction in the third quarter, leading to concerns about whether interest rates have been increased too much as the country heads towards a potential recession.
According to figures released by Stats NZ on Thursday, the economy shrank by 0.3% in the quarter, following a revised 0.5% increase in GDP in the second quarter. Economists had predicted a growth rate of 0.2% for the quarter.
Stats NZ reported that household spending decreased by 0.6% in the quarter, with declines seen in all categories, specifically in spending on durable goods. The statisticians mentioned that the decrease in household spending could be attributed to changes in fees and rebates applied to motor vehicles, which came into effect on July 1.
This slowdown comes after the Reserve Bank of New Zealand decided to hold the cash rate steady at its last policy meeting, but also indicated that inflation remains high and there might be a need for further policy tightening if price pressures do not ease off.
While the official cash rate remains at 5.5%, the hawkish tone of the RBNZ surprised economists.
The economic slowdown in the third quarter was observed across all goods producing industries, predominantly in manufacturing. Activity in the transport, postal, and warehousing industry also weakened due to a decrease in exported goods for the quarter.
However, most service industries experienced growth in the third quarter, especially in healthcare and social assistance sectors.
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