New Zealand's Economy 3Q Contraction Stokes Recession Fears

By James Glynn

SYDNEY--New Zealand's agriculture-rich economy contracted unexpectedly in the third quarter, raising questions about whether interest rates have been risen too far with the economy on track for a return to recession.

The economy contracted 0.3% in the quarter, following a revised 0.5% increase in GDP in the second quarter, according to figures released by Stats NZ Thursday. Economists had expected the economy to grow by 0.2% over the quarter.

Household spending was down 0.6% in the quarter, Stats NZ said. All categories fell, led by declines in spending on durable goods.

The drop in household spending was likely connected to changes in fees and rebates applied to motor vehicles, which were introduced on July 1, the statistician said.

The slowdown comes after the Reserve Bank of New Zealand held the cash rate steady at its last policy meeting, but added that inflation remains too high and further policy tightening might be needed if price pressures don't cool off.

The RBNZ kept the official cash rate at 5.5%, but its hawkish tone surprised economists.

The economic slowdown in the third quarter was broadly based, with all goods producing industries reporting a sharp drop in activity, led by a fall in manufacturing, Stats NZ said.

Activity across the transport, postal and warehousing industry was also weak as freight logistics cooled because of fewer goods being exported in the quarter, it said.

Still, most service industries grew in the third quarter, with the strongest rises seen in healthcare and social assistance.

Write to James Glynn at James.Glynn@wsj.com

(END) Dow Jones Newswires

December 13, 2023 17:32 ET (22:32 GMT)

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