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New Zealand Economy Enters a Recession as a Result of Interest Rate Increases

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New Zealand Economy Recession: According to recent data released on Thursday, New Zealand’s economy has entered a recession as a result, after the country’s central bank aggressively raised interest rates to a 14-year high.

Following a downwardly revised 0.7% decline in the prior quarter, the gross domestic product declined by 0.1% in the March quarter, according to Statistics New Zealand. That meets the criteria for a recession, according to the country, which is defined as at least two consecutive quarters of negative growth.

New Zealand Economy Recession

The slowdown occurs after the central bank of New Zealand raised its benchmark interest rate 12 times in a row, to 5.5%, in an effort to contain inflation. Since 2008, the rate has not been higher, making it more expensive for people to borrow money for major purchases like homes, cars, and other purchases. The Reserve Bank of New Zealand has stated that its next move will be a cut rather than another rate increase for the time being.

The slowdown in growth was consistent with economists’ predictions, and the value of the New Zealand dollar remained largely unchanged, trading at about 62 U.S. cents per unit.

New Zealand Economy Recession
New Zealand Economy Recession

When viewed as a whole year, the picture appeared more positive. The economy of New Zealand expanded by 2.9% after posting strong growth in the first two quarters. Additionally, given the slight decline in the March quarter, it’s possible that the recession call will be overturned when the most recent data are revised the following quarter. New Zealand Economy Recession.

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A string of tragic weather incidents, including flooding in Auckland and a cyclone, contributed to the decline in growth.

In a press release, Statistics New Zealand stated that “the unfavorable weather and ensuing flooding caused significant damage and disruption, particularly across the North Island.”

Business services, which saw a 3.5% decline, and transportation, postal services, and warehousing, which saw a 2.2% decline, were the two main causes of the downturn. Media and telecommunications increased 2.7%, bucking the general trend.

The housing market has been one of the most notable effects of higher interest rates. The average price of a home in New Zealand has decreased by about 18% since peaking 18 months ago.

There are indications, though, that the market may have bottomed out. According to statistics released on Thursday, prices were unchanged from the previous month while sales volumes increased in some regions.

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The central bank had raised rates too much, according to Kiwibank economists Jarrod Kerr and Mary Jo Vergara, and they predict the economy will continue to contract over the coming year.

According to their analysis, “the economy will contract harder if households spend less, which is what we are seeing.” The economy will contract more severely if businesses reduce hiring and investment, which is what we’re hearing.


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