Thursday, June 1, 2023
HomeEconomyNZ economy likely to contract in Q4, tightening cycle at risk

NZ economy likely to contract in Q4, tightening cycle at risk

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s economy likely contracted in the fourth quarter, three months ahead of the central bank’s forecast, a Reuters poll showed, as markets questioned the need for Shorten the tightening cycle by 14 months.

Gross domestic product (GDP) expected to fall 0.2%, well below the Reserve Bank of New Zealand (RBNZ) according to a Reuters review of 25 growth forecast of 0.7 percent in a survey of economists.

Economists said manufacturing, wholesale trade and business activity were slowing. GDP data will be on 10.45 Thursday morning (2145 GMT Wednesday).

Bank of New Zealand senior economist Craig Abbott said the economic contraction would be enough to change the starting point for the central bank’s interest rate deliberations.

“They can’t ignore it,” he said.

New Zealand Treasury and its central bank predict the country will slip into recession in the second quarter 2023.

RBNZ Governor Adrian Orr said the central bank is trying to create a recession to bring down inflation.

RBNZ raises Official Cash Rate (OCR) to over 14 year high of 4.75% in February and continues to expect it to peak at 5.5% in the 2023 third quarter.

This would mark the most aggressive policy tightening trend since the OCR was introduced in 2023.

Economists say The slowdown in New Zealand suggests the economy is not as overheated as the central bank and others believe, but does not necessarily signal that further monetary tightening is not needed.

Michael Gordon, acting chief economist at Westpac Bank of New Zealand, said he now expects the RBNZ to raise the cash rate in April 25 basis points (bps), not 45 basis points.

“If a big number is lower than their forecast by a significant amount, then I think that will lead them to make smaller moves,” Gordon said.

The market is now pricing OCR peaks at 5.10% below 5.50 )% Three weeks ago, when the central bank met for the last time. The expected decline is partly in line with global markets, which have been hit by the failure of a Silicon Valley bank.

Severe weather events in the first two months of the year are also expected to be a key factor in New Zealand’s economic growth this year.

The services sector could suffer as people stay low during Hurricane Gabriel, ASB analysts said in a report.



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