New Zealand sinks into recession, 5 things to know about its economic decline

New Zealand has officially entered a recession as the economy shrank for the second consecutive quarter, marking its steepest contraction in over three decades, excluding the pandemic.

The downturn comes as the South Pacific nation grapples with inflation, weak demand, and a gloomy global economic outlook.

Here are five key things to know about New Zealand’s economic decline:

A deeper-than-expected downturn

Gross domestic product (GDP) fell 1 per cent in the September quarter, far exceeding forecasts of a 0.2 per cent decline. The prior quarter’s contraction was revised to 1.1 per cent, confirming two straight quarters of negative growth — the technical definition of a recession.

Excluding the pandemic, this marks the worst two-quarter decline since 1991.

The NZ dollar hits a two-year low

The economic data sent the New Zealand dollar to $0.5614, its lowest level in two years. The currency had already been under pressure following the US Federal Reserve’s hawkish stance, which strengthened the US dollar.

The weaker currency adds to the economic challenges, increasing import costs and potentially fueling inflation.

Across-the-board weakness

Almost every sector of the economy contracted during the quarter, with significant declines in manufacturing, utilities, and construction.

Household and government spending also fell, reflecting reduced demand amid high inflation. Investment and exports further weighed on the economy, highlighting widespread vulnerabilities.

Rising population, shrinking output

New Zealand’s population grew by 1.2 per cent to 5.35 million in the year to September, but GDP per person declined by 2.1 per cent over the same period.

This disparity is a sign of a weakening economy struggling to keep pace with its growing population, exacerbating pressures on living standards and productivity.

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Policy challenges ahead

The Reserve Bank of New Zealand (RBNZ) faces mounting pressure to respond with more aggressive rate cuts. Markets are now pricing a 70 per cent chance of a 50-basis-point cut in February, with rates potentially dropping to 3 per cent by the end of 2025.

Finance Minister Nicola Willis attributed the downturn to the central bank’s earlier efforts to combat inflation, which she said had “stifled growth.” Meanwhile, analysts hold a glimmer of hope for recovery, citing early signs of improved business confidence and demand.

With inputs from agencies