(Bloomberg) — New Zealand’s economy expanded modestly in the first quarter, pulling it out of recession.
Most read articles on Bloomberg
Statistics New Zealand said in Wellington on Thursday that gross domestic product (GDP) grew 0.2% from the previous quarter (a 0.1% decline). Economists had expected growth of 0.1%. GDP grew 0.3% from a year earlier, beating expectations of a 0.2% increase.
The economy has struggled as the central bank has kept its key interest rate at 5.5%, the highest since 2008, to tame inflation. Higher immigration and a rebound in tourism are boosting economic activity, while rising borrowing costs are curbing private consumption and business investment.
“We expect growth to be minimal through the year,” said Michael Gordon, senior economist at Westpac Banking Corp in Auckland. “Recent indications are the June quarter is shaping up to be quite soft.”
The New Zealand dollar rose after the news but was little changed later. It was trading at 61.32 cents per New Zealand dollar at 1:30 p.m. in Wellington. Bond yields and swap rates rose.
Timing of rate cut
While the GDP result was in line with the RBNZ’s forecast, the economy has only grown in two of the past six quarters.
However, the central bank last month suggested it would not cut interest rates until the second half of 2025, citing persistent core inflation.
RBNZ chief economist Paul Conway said yesterday that the slowdown caused by tighter monetary policy was needed to bring inflation back into the central bank’s target range of 1-3%, which the bank expected to happen later this year.
“We’re in a low-to-negative growth environment, but the growth outlook going forward is likely to improve somewhat and the inflation outlook will continue to decline,” he said. “We’ve experienced some short-term pain, and the idea is that the gains from low and stable inflation will be worth it.”
Most economists expect the first rate cut to come in the final months of 2024 or early 2025. Swaps data shows investors are fully pricing in a 25 basis point cut in policy rates by November.
Bloomberg Economics’ take…
“The first quarter’s expansion may only be a temporary relief from the recession. We expect the economy to struggle in 2024 until central banks reverse course and begin to support growth later this year.”
— James McIntyre, Economist
Click here to read the full article
The main drivers of first-quarter growth were higher spending by tourists and increased production in dairy and forestry, the statistics bureau said. Output increased in eight of 16 industries. Manufacturing and construction both saw declines.
GDP per capita fell 0.3% from the fourth quarter, marking the sixth consecutive quarter of decline.
“Today’s announcement does not change the fact that economic momentum is weakening, particularly from a domestic demand and per capita perspective,” said Miles Workman, senior economist at ANZ Bank in Wellington. “We remain comfortable with OCR’s outlook for rate cuts from February 2025.”
–With assistance from Shinjini Dutta.
(Adds economist comment in final paragraph)
Most read articles on Bloomberg Businessweek
©2024 Bloomberg LP
