Battered by inflation and cyclones, New Zealand sinks into recession

Why you’re reading this: New Zealand walked right into a recession this week after the economy dipped to 0.1% in the last quarter. It is an unprecedented scenario for a nation that led the world in hiking interest rates to curb the wave of inflation that took over after the Coronavirus pandemic. 

3 things you need to know

• New Zealand officially entered its recession era for the first time since 2020. 
• The country is just four months away from holding its general elections. 
• The economic downturn is a result of severe weather conditions, rising costs, and large strikes. 

How did this happen? 

New Zealand experienced its gross domestic product (GDP) shrink to 0.1% in the March 2023 quarter after a 0.7% plunge in the December 2022 quarter. Furthermore, inflation reached 6.7%, according to The Guardian, as the opposition blared warning signals of things getting even worse just months before the general polls.

Who are the key players in the recession? 

From the devastating cyclones Hale and Gabrielle to teachers’ strikes, several circumstances have contributed to New Zealand's economic slump. Severe weather events that hit the country between February and March this year damaged the country's crucial agricultural regions, as well as the road network. 

“The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services,” said economic and environmental insights general manager Jason Attewell. In addition to that, strikes conducted by educators resulted in fewer days of teaching, thus causing " falls in primary and secondary education services," according to Attewell. 

New Zealand has also witnessed a steep rise in food prices over the last year which kept the overall household expenditure at an all-time high. As per the price index data released on Wednesday, prices of grocery food surged by 12.7% in comparison to the year before. 

What does the IMF have to say? 

The International Monetary Fund (IMF) deduced from its latest review of New Zealand’s financial health this week that the country was “in the midst of a necessary, policy-induced slowdown following the strong post-pandemic recovery”. While it noted that the nation had made a relatively quicker recovery than other world economies due to its “exemplary management of the pandemic”, there was no doubt that the generous” support and investment by the government “came at the cost of overheating”. Going forward, the financial agency is expecting a further slowdown in New Zealand's economy in the coming days.