Should the economy fail to expand in the current cyclone-hit quarter, as some economists forecast, the country would have entered a recession six months before the Reserve Bank of New Zealand predicts. — Bloomberg
WELLINGTON: New Zealand may be flirting with recession much sooner than the central bank expected.
The economy contracted 0.2% in the final three months of last year, according to a Bloomberg survey of economists ahead of data due tomorrow.
Should it fail to expand in the current cyclone-hit quarter, as some economists forecast, the country would have entered a recession six months before the Reserve Bank of New Zealand (RBNZ) predicts.
“We’ve seen quite a bit of slowing in large parts of the economy,” said Jarrod Kerr, chief economist at Kiwibank in Auckland.”
At this stage we think we may have recorded a gain in the first quarter, but obviously the risks of a recession are growing.”
New Zealand’s economy has been surprisingly resilient in the face of aggressive rate hikes from the RBNZ, growing 2% – more than twice as much as expected – in the third quarter. Evidence of a sharp slowdown could prompt the central bank to further slow the pace of its monetary tightening or stop before it reaches its forecast peak.
Policymakers last month lifted the Official Cash Rate (OCR) 50 basis points to 4.75%, slowing from the 75-point hike at their previous decision but maintaining a forecast that it will reach 5.5% this year.
Investors had already pared bets on the RBNZ delivering another 50-point hike in April. The repricing gathered pace this week after the collapse of Silicon Vally Bank in the United States, which has damped expectations for further rate increases from the Federal Reserve.
There is now less than a 60% chance that the RBNZ will raise the OCR by 25 points next month, with the peak seen at no more than 5.25%, swaps data showed yesterday.
Westpac New Zealand economists on Monday said they now expect only a 25-point move in April, citing a less overheated economy than the RBNZ anticipated.
The central bank predicted growth of 0.7% for the fourth quarter.
Tomorrow’s data will show annual growth in gross domestic product almost halving to 3.3% from 6.4% in the third quarter, according to Bloomberg’s survey.
Bank of New Zealand (BNZ) senior economist Craig Ebert cautioned against reading too much into the possibility of the economy already being in recession, but said the notion that activity is undershooting RBNZ expectations needs to be taken seriously.
BNZ forecasts a 25-point rate hike in April and another one in May, with the RBNZ then stopping at a cash rate of 5.25%. ANZ New Zealand and ASB Bank economists also see the cash rate topping out at 5.25%. —Bloomberg
