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New Zealand: Economy slips into recession after interest rate hikes

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Houses at Oriental Bay in Wellington, New Zealand.Getty Images

New Zealand’s economy has fallen into a recession after the country’s central bank aggressively raised interest rates to a 14-year high.

Its gross domestic product (GDP) fell by 0.1% in the first three months of the year, official figures show.

That followed a 0.7% contraction in the previous quarter, which means the economy is in a “technical recession”.

The Reserve Bank of New Zealand (RBNZ) has increased the cost of borrowing sharply since October 2021.

New Zealand was one of the first countries to start raising rates in the wake of the pandemic and has outpaced the US Federal Reserve. Last month, the RBNZ increased its main interest rate to 5.5%.

Many New Zealanders, who were already facing rising prices, are now feeling the impact of higher rates as mortgage repayments and the cost of other loans jump.

“Interest rates are crippling,” David Jordan, an Auckland-based web engineer told the BBC.

“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,” he added.

Central banks around the world increased the cost of borrowing as they tried to curb price rises that were triggered as economies opened up after the Covid lockdowns.

Inflation was also driven higher by the rising cost of everything from fuel to food, due to the Ukraine war.

In the first three months of this year, New Zealand’s economy was also impacted by Cyclones Hale and Gabrielle and teachers’ strikes.

“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services,” Jason Attewell, economic and environmental insights general manager at Statistics New Zealand said in a statement.

A technical recession is defined by an economy shrinking for three-month periods, or quarters, in a row.

Earlier, the RBNZ signalled that it had no further plans for further hikes. The contraction adds to expectations that the central bank will not raise rates again in the foreseeable future.

 

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Economy

How will the U.S. election impact the Canadian economy? – BNN Bloomberg

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How will the U.S. election impact the Canadian economy?  BNN Bloomberg

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Trump and Musk promise economic 'hardship' — and voters are noticing – MSNBC

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Trump and Musk promise economic ‘hardship’ — and voters are noticing  MSNBC

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Economy

Economy stalled in August, Q3 growth looks to fall short of Bank of Canada estimates

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OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.

Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries.

The manufacturing sector was the largest drag on the economy, followed by utilities, wholesale and trade and transportation and warehousing.

The report noted shutdowns at Canada’s two largest railways contributed to a decline in transportation and warehousing.

A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.

Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.

The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.

But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.

“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.

The central bank has acknowledged repeatedly the economy is weak and that growth needs to pick back up.

Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.

Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.

The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.

This report by The Canadian Press was first published Oct. 31, 2024

The Canadian Press. All rights reserved.

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