New Zealand's economy has officially entered a recession following a sharper-than-expected decline in the third quarter. The data has strengthened the case for aggressive interest rate cuts from the Reserve Bank of New Zealand, with markets now heavily anticipating a 50-basis-point reduction in February.
New Zealand's economy slipped into recession in the third quarter as activity plummeted more sharply than anticipated and output in the preceding quarter was revised downward. This dismal result solidifies the argument for more aggressive interest rate reductions. The New Zealand dollar sank to a fresh two-year low of $0.5614, having already depreciated by 2.2% following a hawkish easing from the markets.
Markets intensified bets that the Reserve Bank of New Zealand would further reduce interest rates, having already lowered them by 125 basis points to 4.25%. Swaps now indicated a 70% probability of a 50-basis-point cut in February, with rates projected to decline to 3.0% by the end of 2025. Thursday's data revealed that gross domestic product plunged 1.0% in the September quarter compared to the previous quarter, significantly exceeding market expectations of a 0.2% contraction. The June quarter was revised to show a decline of 1.1%, and two consecutive quarters of contraction constitute the technical definition of recession. Excluding the pandemic, this was the largest two-quarter decline since the severe downturn of 1991. 'Given the dire state of the economy, we now believe risks are skewed towards a larger 75bp cut in February,' he added. 'We're more convinced than ever that the Bank will cut rates below neutral, eventually to 2.25%.' The outcome surpassed the 0.2% drop forecast by the RBNZ, and came just two days after New Zealand's Treasury predicted a fall of only 0.1%. The government had already been forced to abandon hopes for a return to budget surpluses, anticipating deficits for the next five years. Finance Minister Nicola Willis on Thursday blamed the central bank for its role in the economic contraction. 'The decline reflects the impact of high inflation on the economy,' she said in a statement. 'That led the Reserve Bank to engineer a recession which has stifled growth.'The weakness was widespread across industries, particularly pronounced in manufacturing, utilities, and construction. Household and government spending decreased in the quarter, while investment and exports also contributed to the decline
Recession Interest Rates New Zealand Dollar Reserve Bank Of New Zealand Economy
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