This country’s economy is in a free fall, after second consecutive quarterly GDP drop

New Zealand’s economy has officially entered a recession, with GDP contracting by 1% in the July-September quarter, according to data released on Thursday, December 19. This marks the second consecutive quarterly contraction, following a revised 1.1% decline in April-June.

The slump exceeded analysts’ forecasts of a 0.2% drop, intensifying concerns about the country’s economic outlook.

Excluding the COVID-19 pandemic, the recent six-month downturn is New Zealand’s weakest economic performance since 1991, according to a report by Kiwibank Economics.

“The 1% decline in activity is huge and much weaker than anyone had anticipated,” the report noted, though it highlighted the possibility of upward revisions in earlier growth figures and some relief from a 1% interest rate cut during the quarter.

The New Zealand dollar fell sharply, trading at US$0.5626 in the late afternoon, down 1.8% from the previous day. The unexpected scale of the contraction caught traders off guard, further dampening sentiment.

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The government defended its economic policies, emphasising steps to support growth and ensure fiscal responsibility. New Zealand Finance Minister Nicola Willis attributed the downturn to the effects of high inflation and the Reserve Bank’s deliberate recessionary measures aimed at curbing inflation.

“This decline reflects the impact of high inflation and necessary interventions by the Reserve Bank,” she said, expressing optimism for a recovery in the next quarter and stronger growth by 2025.

However, the Opposition Labour Party sharply criticised the government’s approach, with finance spokesperson Barbara Edmonds accusing Willis of exacerbating the recession through austerity measures. “Nicola Willis’ cuts and austerity have fed the recessionary fire,” Edmonds remarked.

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The recession has also raised alarm about its impact on workers and job security. Craig Renney, economist at the New Zealand Council of Trade Unions, warned of worsening hardships. “This isn’t a wake-up call; it’s an alarm. The economic situation is worse than we thought, and workers are bearing the brunt,” he said.