New Zealand’s economy has fallen into a recession, according to official data released on Thursday, with a damaging cyclone fuelling a widespread downturn just months before a national election. Stats NZ signalled the economy had contracted 0.1 per cent in the first quarter, after a fall of 0.7 per cent at the end of 2022.

Four months before the country goes to the polls, Finance Minister Grant Robertson admitted that entering recession was “not a surprise”. “We know 2023 is a challenging year as global growth slows, inflation has stayed higher for longer and the impacts of North Island weather events continue to disrupt households and businesses,” he added.

January flooding in Auckland and destruction caused by Cyclone Gabrielle in February both weighed on the economy. The government estimates it will cost up to NZ$15 million ($9 million) to clean up the damage caused by the extreme weather.

This is New Zealand’s first recession since 2020, when the pandemic shuttered borders and choked exports. With the economy shrinking, inflation running hot at 6.7 per cent and an October 14 election approaching, the centre-right opposition was quick to blame the government.

“Red lights are flashing for the New Zealand economy, which has shrunk even while inflation rages on,” said opposition finance spokesperson Nicola Willis. Agriculture, manufacturing, transport and services all saw declines. With an election on the horizon, recent polls suggest the Centre-Left Labour government faces a tight race against the opposition National Party at ballot booths.

New Zealand’s Prime Minister Chris Hipkins is under growing pressure to boost the contracting economy. His planned visit to China later this month is aimed at improving trade ties, as almost a quarter of New Zealand’s export earnings come from Chinese businesses.

Time to reverse rate hikes

Jarrod Kerr, chief economist for Kiwibank, told AFP that New Zealand has gone into recession sooner than analysts expected. “And we still have a fair amount to go -- we’re forecasting contractions for the rest of the year,” he added.

Kerr said the onus is on the Reserve Bank “to dig us out” by starting to reverse interest rate hikes, as New Zealanders struggle to make ends meet during a cost-of-living crisis. “Households are hurting at the moment. Budgets are being affected and stretched,” he added.

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