Pedestrian strolling previous the Reserve Financial institution of New Zealand constructing on Saturday, June 22, 2019.
Birgit Krippner | Bloomberg | Getty Pictures
New Zealand’s financial system missed forecasts for development within the fourth quarter and as a substitute shrank 0.6%, official information confirmed on Thursday, elevating the possibilities of a recession and making additional rate of interest hikes much less probably.
Gross home product failed to fulfill analysts’ expectations of a 0.2% contraction within the December quarter and was effectively under the Reserve Financial institution of New Zealand’s forecast of 0.7% development. It was a reversal from revised development of 1.7% seen within the third quarter.
The weak point within the financial system is broad-based and situations are already recessionary for manufacturing, retail, commerce and lodging, in keeping with the Statistics New Zealand information.
The central financial institution and treasury had each forecast the nation would enter a shallow recession within the second quarter of 2023.
Economists mentioned the weak information launched on Thursday meant it was attainable the nation was already in recession, notably given the influence that extreme climate in January and February was prone to have on the financial system.
“The outlook for Q1 stays gloomy,” Capital Economics mentioned in a word.
New Zealand spent two quarters in recession in 2020 due to tight restrictions when the Covid-19 pandemic hit, however previous to that the financial system had not contracted since late 2010.
No matter whether or not the nation is getting into a recession, the financial system is way much less overheated than the Reserve Financial institution of New Zealand, or RBNZ, had anticipated.
The central financial institution has undertaken its most aggressive coverage tightening since 1999, when the official money fee was launched, lifting it by 450 foundation factors since October 2021 to 4.75%.
The market is betting the RBNZ’s plan to hike the official money fee by an additional 75 foundation factors this yr to five.5% by the third quarter shall be pared again.
“We see no want for the RBNZ to go to five.50%, which might danger inflicting pointless losses in exercise and employment,” Citi analysts mentioned in a word, predicting GDP contractions within the first and second quarter.
NZ financial institution invoice futures have surged because the market priced in a decrease peak for RBNZ charges. The market is now 50-50 on whether or not the RBNZ hikes 25 foundation factors in April, whereas the terminal fee is seen at 5.11% quite than the financial institution’s projection of 5.5%.
The New Zealand greenback was down earlier than the information however prolonged the autumn to be off 0.6% at $0.6145. Two-year swaps are close to a two-month low of 4.925% having fallen sharply in a single day as financial institution sector issues drove down bond yields globally.
ASB Financial institution mentioned in a word that the information weak point and elevated monetary market jitters abroad prompt much less urgency for RBNZ fee hikes.
“Uncertainty is elevated, however we now have shaded down our 50 foundation level April OCR name to a 25 foundation level hike,” the word mentioned.
Correction: The picture caption on this story has been up to date to take away out-of-date details about New Zealand’s rates of interest.