New Zealand’s economy shrinks in fourth quarter, altering price outlook

Pedestrian walking previous the Reserve Bank of New Zealand creating on Saturday, June 22, 2019. New Zealand’s central bank delivered its sixth straight interest price hike on Wednesday and signaled it remained comfy with its planned aggressive tightening path as authorities seek to lower second-round effects of runaway inflation.

Birgit Krippner | Bloomberg | Getty Pictures

New Zealand’s economy missed forecasts for development in the fourth quarter and rather shrank .six%, official information showed on Thursday, raising the probabilities of a recession and generating additional interest price hikes much less probably.

Gross domestic item failed to meet analysts’ expectations of a .two% contraction in the December quarter and was properly under the Reserve Bank of New Zealand’s forecast of .7% development. It was a reversal from revised development of 1.7% observed in the third quarter.

The weakness in the economy is broad-primarily based and circumstances are currently recessionary for manufacturing, retail, trade and accommodation, according to the Statistics New Zealand information.

The central bank and treasury had each forecast the nation would enter a shallow recession in the second quarter of 2023.

Economists mentioned the weak information released on Thursday meant it was doable the nation was currently in recession, especially provided the effect that extreme climate in January and February was probably to have on the economy.

“The outlook for Q1 remains gloomy,” Capital Economics mentioned in a note.

New Zealand spent two quarters in recession in 2020 simply because of tight restrictions when the Covid-19 pandemic hit, but prior to that the economy had not contracted given that late 2010.

Regardless of no matter if the nation is getting into a recession, the economy is substantially much less overheated than the Reserve Bank of New Zealand, or RBNZ, had anticipated.

The central bank has undertaken its most aggressive policy tightening given that 1999, when the official money price was introduced, lifting it by 450 basis points given that October 2021 to four.75%.

The marketplace is betting the RBNZ’s program to hike the official money price by a additional 75 basis points this year to five.five% by the third quarter will be pared back.

“We see no will need for the RBNZ to go to five.50%, which would threat causing unnecessary losses in activity and employment,” Citi analysts mentioned in a note, predicting GDP contractions in the initial and second quarter.

NZ bank bill futures have surged as the marketplace priced in a decrease peak for RBNZ prices. The marketplace is now 50-50 on no matter if the RBNZ hikes 25 basis points in April, though the terminal price is observed at five.11% rather than the bank’s projection of five.five%.

The New Zealand dollar was down prior to the information but extended the fall to be off .six% at $.6145. Two-year swaps are close to a two-month low of four.925% possessing fallen sharply overnight as bank sector issues drove down bond yields globally.

ASB Bank mentioned in a note that the information weakness and elevated monetary marketplace jitters overseas recommended much less urgency for RBNZ price hikes.

“Uncertainty is elevated, but we have shaded down our 50 basis point April OCR contact to a 25 basis point hike,” the note mentioned.