New Zealand’s economy has officially entered a recession, with the country’s GDP contracting by 1.0% in the third quarter of 2024, according to official data released on Thursday. This unexpected economic slump has led to a significant drop in the value of the New Zealand dollar, which fell by around 1.8% to trade at US$0.5626 by late afternoon.
The recession marks the second consecutive quarter of economic contraction, following a revised 1.1% decline in Q2. Analysts had initially anticipated a much smaller contraction of 0.2%. The last time New Zealand experienced such a prolonged downturn, excluding the COVID-19 pandemic, was in 1991, with the current six-month period now considered one of the weakest on record.
The economy’s struggles are being attributed to a combination of high inflation, soaring borrowing costs, and a housing crisis, which have significantly dampened consumer sentiment. According to Kiwibank economics, most industries are now feeling the impact of the downturn.
Despite the grim news, there is a silver lining: earlier revisions of economic data have suggested some growth earlier in the year, and analysts remain hopeful that the worst may be over. With a 1% cut in interest rates over the last quarter, there is potential for economic relief in the coming months.
Finance Minister Nicola Willis defended the coalition government’s fiscal policies, stating that high inflation and the Reserve Bank’s measures to curb it caused the contraction. She predicts economic growth will resume in the next quarter and accelerate in 2025.
However, opposition members, including Labour’s finance spokesperson Barbara Edmonds, have criticized the government’s austerity measures, blaming cuts for exacerbating the recession. Edmonds accused Willis of stoking the “recessionary fire” and dismissed any attempts to improve the GDP figures through what she described as “creative accounting.”
