New Zealand's economy has officially entered a recession after gross domestic product (GDP) fell by 0.1% in the first quarter of 2023, following a 0.7% contraction in the previous quarter, according to official figures. A technical recession is defined as two consecutive quarters of economic decline.
The downturn comes as the Reserve Bank of New Zealand (RBNZ) aggressively raised interest rates to a 14-year high of 5.5% to combat inflation. The central bank began increasing borrowing costs in October 2021, making New Zealand one of the first countries to do so post-pandemic, and has outpaced the US Federal Reserve in tightening monetary policy.
Higher interest rates have placed significant financial pressure on households, with mortgage repayments and other loan costs rising sharply. David Jordan, an Auckland-based web engineer, told the BBC: 'Interest rates are crippling. I have seen many job losses in my industry as start-ups try to save money, though consultancies working with big global firms seem to be faring better.'
The economy was also impacted by Cyclones Hale and Gabrielle, as well as teachers' strikes in the first quarter. Jason Attewell, economic and environmental insights general manager at Statistics New Zealand, noted: 'The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services.'
Central banks worldwide have raised interest rates to curb post-pandemic inflation, exacerbated by the Ukraine war driving up fuel and food costs. However, the RBNZ has signalled no further rate hikes, and the recession strengthens expectations that rates will remain unchanged in the near future.
