Investing.com -- New Zealand’s economy contracted in the first quarter, entering a technical recession as an aggressive pace of interest rate hikes by the central bank and a slew of bad weather in the first quarter dented local activity.
Gross domestic product (GDP) fell 0.1% in the three months to March 31, in line with expectations, following a revised 0.7% drop in the fourth quarter, data from Statistics New Zealand showed. The country is now in a technical recession with two straight quarters of contraction.
GDP still grew 2.2% in the first quarter as compared to last year, but missed expectations for growth of 2.6%.
The weak reading comes as the Reserve Bank of New Zealand (RBNZ) hiked interest rates to a 14-year high to bring down stubborn inflation, which in turn weighed heavily on local manufacturing.
The country was battered by cyclones Hale and Gabrielle through the quarter, the latter of which caused widespread destruction in the country and was also the deadliest cyclone to hit New Zealand in over 50 years.
The cyclones had a heavy toll on New Zealand’s key agriculture sector, and also disrupted business activity across the country.
“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services,” Jason Attewell, economic and environmental insights general manager at Stats NZ said in a note.
But growth was also impacted by the RBNZ embarking on its toughest rate hike cycle since 1999, where the official cash rate was hiked by over 500 basis points since late-2021.
While the bank recently signaled that it was done hiking rates, it is expected to keep rates higher for longer to bring down stubborn inflation. A possible recession was also telegraphed by the RBNZ, which had warned that it was targeting a cooldown in economic activity to help bring down inflation.