New Zealand’s economy grew more than twice as much as economists expected in the second quarter, while a revision to the previous quarter showed the nation hasn’t been in recession.
Gross domestic product rose 0.9% in the three months through June, Statistics New Zealand said Thursday in Wellington, stronger than the 0.4% forecast by economists. First-quarter GDP was revised to unchanged from a 0.1% contraction, meaning the economy narrowly avoided a technical recession after shrinking in the final three months of 2022.
The surprising economic data offer some solace for the ruling Labour Party, which is significantly behind in opinion polls barely three weeks out from a general election. While Prime Minister Chris Hipkins argues the economy has reached a turning point, some analysts anticipate it will weaken again over the remainder of the year as high interest rates curb household spending.
New Zealand’s dollar edged lower after the GDP release, buying 59.16 US cents at 12:36 p.m. in Wellington. Bond yields rose and investors increased bets that the Reserve Bank may need to raise interest rates again to tame inflation.
“It remains to be seen whether inflation pressures will dissipate quickly enough to satisfy the RBNZ,” said Darren Gibbs, senior economist at Westpac in Auckland. “We think that today’s data adds to the likelihood that the RBNZ will, at some point, feel the need to act on the slight tightening bias that it indicated last month.”
In August, the RBNZ reiterated it was done raising rates but its projections showed a small risk of another hike over the next 12 months. That forecast assumed the economy would return to growth in the three months through June but shrink again in the third and fourth quarters of this year.
Election Campaign
Economic management is a theme of the election campaign, with opposition parties blaming the government for rampant inflation and soaring mortgage rates. New Zealanders go to the polls on Oct. 14.
Finance Minister Grant Robertson said today’s GDP data vindicate the government’s approach during challenging times.
“The New Zealand economy is doing better than expected,” he said. “This is a very positive result with Stats NZ confirming no recession earlier in the year. The economy is now 7.7% bigger than at the start of the pandemic.”
Opposition National Party finance spokesperson Nicola Willis said such comments showed Labour is “completely detached from reality and out of touch with everyday Kiwis.”
“IMF forecasts show that next year our economic growth will be among the lowest in the entire world,” she said. “The reality for struggling New Zealanders is that it already feels like we are in recession.”
What Bloomberg Economics Says:
“The growth spurt won’t last. We expect recessionary conditions to re-emerge through the second half of the year.”
—James McIntyre, economist.
To read the full note, click here
Surging immigration is helping the economy to grow. New Zealand added a record net 92,600 people in the year through June and that is stimulating demand for rental properties and homes.
Still, the economic expansion is outpacing population growth, with GDP per capita rising 0.2% in the second quarter, today’s report showed.
From a year earlier, the economy grew 1.8%, more than economists’ 1.2% median forecast but down from the 2.2% annual pace in the first quarter.
--With assistance from Ainsley Thomson.
(Updates with finance minister in seventh paragraph)
