New Zealand is facing a severe economic downturn, with the country's GDP contracting for the past year. The article analyzes the factors contributing to this decline, including the government's austerity measures and the aggressive interest rate hikes by the Reserve Bank of New Zealand. It also contrasts New Zealand's economic performance with Australia's.
If you're looking for a last-minute overseas summer getaway, New Zealand is looking increasingly attractive. While the Australian dollar plumbs a two-and-a-bit-year low against the US greenback and a four-and-a-half-year low against the British pound, we're slightly up on the Kiwi dollar today. Australia's annual economic growth was anaemic — and it was the worst annual number outside the pandemic since the early 1990s recession — then spare a thought for our cousins across the ditch.
That would have already cemented a return to recession but, adding insult to injury, the statistics bureau revised down the previous quarter's contraction from 0.2 to a whopping 1.1 per cent. New Zealand's economy has shrunk 1.5 per cent over the past year. These are depressionary levels of economic contraction. Why is the Kiwi economy such a disaster? In short, a super-aggressive, inflation-fighting central bank collided with the October 2023 election of what has been described as New Zealand's most conservative government in decades, which came to office with a commitment to slash public spending. That's a commitment it has fulfilled, with public spending dropping 1.9 per cent in the September quarter, a stark contrast to Australia's growth in government outlays. The government's mid-year budget update is bereft of even the slightest whiff of pre-election razzamatazz — which makes it rather strange by the standards of budget politics. But, if that was supposed to free up space for the private sector, it chose not to use it. Business investment plunged 3 per cent, falling for the sixth quarter in a row and now 8 per cent below where it was a year-and-a-half earlier. On the monetary policy front, the Reserve Bank of New Zealand (RBNZ) started lifting its cash rate from COVID-19 lows of 0.25 per cent in October 2021 — a full seven months before Australia's Reserve Bank. The Kiwis then lifted their cash rate to a peak of 5.5 per cent by May 2023, a time when Australia's benchmark interest rate was still at
NEW ZEALAND ECONOMY ECONOMIC CONTRACTION GOVERNMENT SPENDING INTEREST RATES RESERVE BANK OF NEW ZEALAND
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