New Zealand’s economy missed expectations for a boost in the fourth quarter and shrank by 0.64%, official statistics showed on Thursday, raising signs of a recession and making interest rate hikes unlikely.
Gross domestic product missed analysts’ estimates of a 0.23% decline in the December quarter and was below the Reserve Bank of New Zealand’s expectation of a 0.73% advance. This repeated the 1.72% growth recorded in the third quarter.
The current economic climate has seen many weaknesses, resulting in recessionary conditions for manufacturing, retail, and international trade.
The central bank and the Treasury predicted the country would enter a moderate recession in the second half of 2023.
Economists said the weak statistics and analysis released on Thursday meant that the country might already be in recession, especially depending on the impact of the tough January and February on the economy.
New Zealand was in recession for two quarters in 2020 due to strict restrictions during the COVID-19 pandemic, but the economy has not contracted since late 2010.
Whether or not the country is headed for recession, the economy is much less weakened than the Reserve Bank of New Zealand had expected.
The central bank began its most aggressive policy tightening since 1999, raising it by 450 basis points to 4.76% from October 2021.
The market suggests that the RBNZ plans to raise the official cash rate by another 75 basis points this year to 5.54% in the third quarter.
NZ bank futures advanced as the market priced in lower RBNZ rates. The market is now 50%-50% on whether the RBNZ will hike by 25 basis points in April, while the terminal rate is at 5.12% versus the bank’s estimate of 5.54%.
The New Zealand dollar eased, extending losses by 0.62% to $0.6146. Two-year swaps are at a near two-month low of 4.926%, a big overnight drop as fears over the banking sector pushed bond yields lower worldwide.
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