https://www.bloomberg.com/news/articles/2023-12-13/new-zealand-economic-growth-slows-as-rate-hikes-curb-spending

14 December 2023 at 10:51 GMT+13

New Zealand’s economy unexpectedly contracted in the third quarter, fueling bets that the central bank will start cutting interest rates next year.

Gross domestic product declined 0.3% in the three months through September after increasing 0.5% in the previous quarter, Statistics New Zealand said Thursday in Wellington. Economists expected 0.2% growth. From a year earlier, the economy shrank 0.6% — its weakest performance since a pandemic-led contraction in 2021.

The economy is cooling faster than the Reserve Bank expected in the wake of its aggressive monetary policy tightening designed to damp demand and curb rampant inflation. The statistics agency today revised previous GDP readings, showing the country was actually in recession in the six months through March.

The New Zealand dollar fell after the GDP report as traders priced cuts to the Official Cash Rate starting in the first half of next year. The kiwi bought 61.76 US cents at 11:31 a.m. in Wellington from 62 cents beforehand. New Zealand bonds extended gains, with 10-year yields falling as much as 14 basis points to 4.65%.

"The risk is that the economy continues to decelerate from here," said Nathaniel Keall, economist at ASB Bank in Auckland. "Should that weaker growth outlook translate into a swifter reduction in inflationary pressures, OCR cuts could come earlier than the early 2025 time-frame we’ve been anticipating."

While the RBNZ has held the OCR at 5.5% since May, last month it signaled the risk of a rate hike next year and forecast no reductions until mid-2025, citing record immigration.

However, the surge in the number of migrants entering New Zealand hasn’t so far supported the economy to the degree the bank expected. It had forecast growth of 0.3% for the third quarter.

GDP per capita shrank 0.9% from the second quarter, its fourth straight quarterly decline.

The 0.6% annual contraction was the first since the third quarter of 2021, when the economy was hit by a lockdown in largest city Auckland. Economists expected 0.5% growth. Second-quarter growth was revised down from the initial print of 0.9%.

The main drivers of the third-quarter contraction were falls in manufacturing, non-residential construction, household spending and exports, the statistics agency said.
(Updates with economist comment)