New Zealand Falls Into Recession Amid Sharp Economic Slump

WELLINGTON, Dec 19 — New Zealand has officially slipped into a recession, with a sharper-than-expected economic downturn in the third quarter, triggering a political blame game and unsettling the country’s currency.

According to official data released on Thursday, the nation’s gross domestic product (GDP) contracted by 1.0% in the July-September period compared to the previous quarter — a far worse result than the 0.2% decline forecasted by analysts. This follows a revised 1.1% contraction in the second quarter, marking two consecutive quarters of economic decline, the technical definition of a recession.

Kiwibank Economics described the result as a “huge” slump that exceeded all expectations. “Excluding the Covid-19 pandemic period, this is the weakest six-month stretch for the New Zealand economy since 1991,” the report noted, adding that economic weakness had spread across most sectors.

The surprise downturn sent the New Zealand dollar tumbling, trading at US$0.5626 in late afternoon — a 1.8% drop from the previous day. Traders were caught off guard by the scale of the slump, further fueling uncertainty about New Zealand’s economic outlook.

Political Blame Game
The conservative coalition government defended its fiscal policies amid mounting criticism. “The latest economic figures highlight the importance of the steps the government has taken to restore respect for taxpayers’ money and drive economic growth,” said a government statement.

Finance Minister Nicola Willis pointed to high inflation and monetary tightening as the primary culprits. “The decline reflects the impact of high inflation on the economy. That led the Reserve Bank to engineer a recession, which has stifled growth,” Willis said. She predicted a turnaround in the next quarter, with stronger growth expected in 2025.

However, opposition parties were quick to lay blame on the government’s policies. Labour finance spokesperson Barbara Edmonds accused Willis of worsening the downturn. “Nicola Willis’ cuts and austerity have fed the recessionary fire,” Edmonds said. “There’s no creative accounting that Nicola can do to make these GDP figures better.”

Edmonds emphasized that the government’s economic strategy lacked the innovation needed to stabilize growth. “New Zealanders are paying the price for short-sighted fiscal decisions,” she added.

Future Outlook
Despite the grim data, Kiwibank noted a possible silver lining, suggesting that the third quarter may mark the bottom of the economic cycle. Analysts cited a recent one-percentage-point cut in interest rates as a factor that could provide some relief in the coming months.

The next quarter will be critical as policymakers navigate challenges posed by weak consumer sentiment, high borrowing costs, and a housing market under pressure.

— Agency

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