By James Glynn


SYDNEY--New Zealand's farm-rich economy was in recession in the final three months of 2023 despite a jump in population growth, with economists now expecting the central bank to fall in line with many of its global peers and deliver interest-rate cuts in the second half of the year.

Gross domestic product growth contracted 0.1% in the fourth quarter, following a 0.3% contraction in the third quarter, Stats NZ said Thursday. GDP has contracted sequentially for four out of the past five quarters.

"The final quarter of 2023 wrapped up a turbulent year for New Zealand as a second-straight drop in GDP put the country back into a technical recession," said Shannon Nicoll, associate economist at Moody's Analytics.

"A subdued global picture and restrictive monetary policy meant New Zealand spent 2023 almost jogging on the spot," he added.

The return to recession comes despite 3% population growth and expanded government spending over the last year, economists said.

GDP per capita decreased by 0.7% over the quarter, according to the data.

The Reserve Bank of New Zealand has raised its official cash rate by 525 basis points since October 2021. It was one of the first central banks to act against inflation.

Still, Sharon Zollner, chief economist at ANZ Bank, said the recession reflects the extent of overheating in the economy and sizeable task set for the RBNZ to tame the surge in inflation that resulted in the wake of the pandemic.

"This isn't your run-of-the-mill run-for-the-hills recession that we've seen through times of financial market and economic crisis," Zollner said. "It's a policy-induced slowdown that's part of the necessary transition from too much fiscal and monetary stimulus in the wake of the pandemic."

"Macro stimulus was appropriate at the time, but that doesn't mean it was costless. This is what paying the piper looks like, and if we don't pay up, the inflation rats will take over the whole economy," Zollner added.

Andrew Boak, chief economist at Goldman Sachs said the way is now clear for the RBNZ to start cutting interest rates in coming months.

"The RBNZ [looks set] to pivot more dovish over the coming months and start an easing cycle later in the year, with a base case for rate cuts to commence from August," he said.

Wholesale trade was the largest downward driver in the quarter, led by falls in grocery and liquor wholesaling; and machinery and equipment wholesaling, Stats NZ said.

Retail trade activity also fell, driven by furniture, electrical, and hardware retailing, as well as food and beverage services, it said.

Still, activity in eight of the 16 industries measured increased, driven by rental, hiring, and real-estate services; and by public administration, safety, and defense.

Increased activity associated with an election contributed to growth in public administration, safety, and defense, Stats NZ said.


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


(END) Dow Jones Newswires

03-20-24 2046ET