There are many reasons why the economy shrank, economist says
New Zealand’s economy has officially slipped into recession, after Stats NZ data revealed 0.1% decline in GDP on the first quarter of the year, but this doesn’t mean mortgage holders are about to get some relief from surging interest rates, economists have warned.
The government said severe weather events such as Cyclone Gabrielle and the Auckland floods were to blame for the recession, while the National Party blamed the government.
But ASB chief economist Nick Tuffley (pictured above) said the economy shrank due to several other reasons, including inflation and cost of living, Newshub reported.
“The economy has been under pressure as interest rates have risen and the cost of living has gone up,” Tuffley told co-host Ryan Bridge on AM. “The floods won’t have helped, but look, it was a reasonably broad-base decline.”
Tuffley said New Zealand will experience “patchy” economic growth over the rest of 2023.
But homeowners hoping that a technical recession will result in the Reserve Bank easing interest rates may have to wait a bit longer, he said.
RBNZ has been aggressively hiking rates since the end of 2021 in a bid to tame inflation. And those increases are not going to stop any time soon just because spending is down, Tuffley said.
At this point, the central bank is just waiting to see what happens with inflation, he said, as he added that “we do need interest rates to sit at a fairly high level to get inflation back from nearly 7% to somewhere between 1% and 3%, which is their (RBNZ's) job,” Newshub reported.
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