New Zealand’s economy showed a modest expansion in the first quarter, ending recession with a 0.2% gain in gross domestic product (GDP) from the previous quarter. This growth was higher than economists’ expectations of 0.1%, marking a 0.3% increase from the year-earlier quarter, surpassing the 0.2% estimate.
The Reserve Bank of New Zealand (RBNZ) has been trying to control inflation by keeping its key interest rate at 5.5%, the highest since 2008. While factors like strong immigration and a recovery in tourism have been supporting economic activity, high borrowing costs have been constraining consumer spending and business investment.
Following the release of the GDP data, the New Zealand dollar strengthened, trading at 61.42 US cents at 11 a.m. in Wellington, compared to 61.30 cents prior to the report. The GDP growth of 0.2% in the quarter aligned with RBNZ’s forecast, which anticipates growth to remain slow due to tight monetary policy and persistent core inflation.
RBNZ Chief Economist Paul Conway emphasized that an economic slowdown is necessary to bring inflation back within the central bank’s target range of 1-3%. While there may be some short-term challenges, Conway believes that low and stable inflation will ultimately lead to long-term benefits for New Zealand’s economy.
Most economists expect the first rate cut to occur in late 2024 or early 2025, with investors already factoring in a potential reduction of the Official Cash Rate by November based on swaps data. The first-quarter growth was primarily driven by increased tourist spending and primary production, although manufacturing and construction sectors experienced declines according to statistics agency reports.
Despite a decrease in GDP per capita from Q4 (-0
