New Zealand’s economy grew by a “whopping” 2 per cent in the three months to September, double economists’ expectations and reinforcing the ultra-hawkish stance taken by the country’s central bank to tackle inflation.
The quarterly rise in gross domestic product was driven by a rebound in construction, services and tourism after the South Pacific country reopened its borders earlier this year.
Growth hit 6.4 per cent year on year in September, outpacing other developed economies, as New Zealand continued to rebound from the impact of strict lockdowns aimed at stemming the spread of Covid-19. The annualised growth rate was faster than its equivalents in Australia at 5.9 per cent, the UK at 2.4 per cent and the US at 1.9 per cent, according to the New Zealand Treasury.
New Zealand is still expected to tip into recession in 2023, according to both its central bank and the Treasury, despite the sharper-than-expected GDP growth.
Grant Robertson, New Zealand’s Treasurer, said: “The economy’s resilience stands us in good stead in a volatile economic environment with a period of high inflation to be followed by forecasts of a shallow recession.”
“We will continue to focus on supporting New Zealanders with cost of living pressures while carefully and responsibly managing the government’s finances that the Treasury noted is helping reduce demand pressures,” he added.
The rise in interest rates and a decline in house prices in New Zealand, combined with a cost of living crisis, has put pressure on the Labour government of Prime Minister Jacinda Ardern in the run-up to next year’s election. Ardern is trailing in the polls and this week apologised to a political opponent for swearing at him in parliament.
The growth in GDP raised expectations among economists of more interest rate rises from the Reserve Bank of New Zealand, which was one of the first big central banks to begin tightening monetary policy last year and has maintained an ultra-hawkish policy as inflation set in across developed economies.
The RBNZ has acted to curb what it dubbed “the misery of inflation”, which hit 7.2 per cent year on year in the September quarter, with interest rate rises including a record 0.75 per cent increase in November.
Citi analyst Faraz Syed said the unexpectedly strong expansion in New Zealand’s economy, set against consensus expectations of 0.9 per cent growth, raised the prospect of more interest rate rises when the RBNZ meets again in 2023. He projected a 50-basis-point increase in February and added a further 25-point rise in April.
ANZ analyst Miles Workman, who described the GDP growth figure as “whopping”, said there was still a lot of “noise” in the data after the border reopening in July.
“Today’s data won’t change the RBNZ’s assessment that a recession in 2023 is the likely cost of getting on top of the wage-price spiral that is fuelling core inflation,” the bank said.
