The latest national accounts showed that New Zealand’s economy is already halfway into recession, with GDP shrinking by 0.6% over the December quarter.
The result disappointed economists’ expectations and was significantly worse than the 0.7% increase in GDP forecast by the Reserve Bank of New Zealand (RBNZ):
Despite the economy being far worse than anticipated, the RBNZ last week maintained its hawkish monetary stance, suggesting the central bank will lift rates again next week and beyond.
RBNZ Chief Economist Paul Conway’s speech to the KangaNews-ANZ Capital Markets Forum last Thursday was tough on inflation and suggested the risks are skewed towards further official cash rate increases beyond next Wednesday.
In particular, Conway argued inflation was “high and widespread” because strong demand was outstripping supply.
“We remain deeply committed in our work of bringing inflation down and keeping it low and stable in future. Quite simply, that’s our job”, Conway said.
In a note released after the latest national accounts result, Bank of New Zealand also forecast the RBNZ will push through two more 25 basis point hikes, delivering a peak of 5.25%.
Thus, another 0.25% rate hike looks certain when the RBNZ meets next week, with at least one more increase likely.
And with it, the RBNZ will all but guarantee the economy slides into recession, alongside further falls in house prices.
