WELLINGTON- New Zealand’s economy may have contracted in the fourth quarter, three months ahead of a central bank forecast, a Reuters poll found, as the market questions whether an 18-month tightening cycle will need to be curtailed.
Gross domestic product (GDP) is expected to be down 0.2 percent in the December quarter, well below the Reserve Bank of New Zealand’s (RBNZ) forecast of 0.7 percent growth, according to a Reuters poll of 14 economists.
Manufacturing, wholesale trade and business activity were slowing, according to economists.
Craig Ebert, senior economist at Bank of New Zealand, said an economic contraction would be notable enough to change the starting point of rate deliberations by the central bank.
“They can’t ignore it,” he said.
New Zealand Treasury and its central bank have forecast the country will move into a recession in the second quarter of 2023.
RBNZ Governor Adrian Orr has said the central bank is trying to engineer a recession to bring down inflation.
RBNZ lifted the official cash rate (OCR) to a more than 14-year high of 4.75 percent in February and continues to expect it to peak at 5.5 percent in the third quarter of 2023.
That would mark the most aggressive policy tightening streak since the OCR was introduced in 1999.
Economists said New Zealand’s economic slowdown suggests the economy is not as overheated as the central bank and others thought, but it does not necessarily indicate that no further monetary policy tightening is needed.
Michael Gordon, acting chief economist at Westpac New Zealand said he now expected the RBNZ would lift the cash rate by 25 basis points (bps) in April rather than 50 bps. — Reuters
