New Zealand's agriculture-rich economy contracted unexpectedly in the third quarter, raising concerns about the country's economic outlook. According to figures released by Stats NZ on Thursday, the economy shrunk by 0.3% in the quarter, following a revised 0.5% increase in GDP in the second quarter. This contraction was contrary to economists' expectations of a 0.2% growth.
Stats NZ reported that household spending also declined by 0.6% in the quarter, with all categories experiencing a decrease. The decline in spending on durable goods was the leading factor contributing to the drop. This decline in household spending can be attributed to changes in fees and rebates applied to motor vehicles that were implemented on July 1.
The Reserve Bank of New Zealand (RBNZ) recently opted to keep the cash rate unchanged at its latest policy meeting but indicated concerns about high inflation levels. The RBNZ signaled that further policy tightening may be necessary if price pressures do not subside. Despite keeping the official cash rate at 5.5%, the RBNZ's hawkish tone surprised economists.
Darren Gibbs, senior economist at Westpac, characterized the data as reflecting an economy that is "sliding backwards." He emphasized that the recent data revisions revealed that the overall size of the economy is actually 1.8% smaller than previously estimated by the RBNZ. As a result, Gibbs suggested this could reduce the central bank's estimate of inflation pressure and potentially lower the likelihood of an interest rate hike.
The economic slowdown in the third quarter was widespread, with all goods producing industries reporting a significant decrease in activity. Manufacturing experienced the sharpest decline, while the transport, postal, and warehousing sector also saw a weakening due to reduced exports. On a positive note, most service industries witnessed growth during this period, specifically in healthcare and social assistance.