New Zealand’s economy increased more than predicted in the second quarter, driven by a services sector pick-up, avoiding a technical recession. This will aid the government, which is under pressure for its economic management, ahead of an election.
The central bank, which requires slower growth to reduce inflation, may worry about the stronger-than-expected expansion, which might keep rates at their highest in 14 years longer than expected, experts said.
On Thursday, official data showed June GDP climbed 0.9%, better than analysts’ projections of 0.5%, following a revised 0.0% in the first quarter.
First-quarter flat growth suggests the country was never in recession. Statistics New Zealand reported 1.8% annual growth, exceeding 1.2% projections.
After the data, the New Zealand dollar touched an intraday high of $0.5952 but fell 0.3% to $0.5913 at 0105 GMT due to U.S. dollar strength. Two-year swap rates rose 12 basis points to 5.745%, the highest since 2008, mainly due to the U.S. Federal Reserve’s hawkish stance.
Statistics New Zealand reported substantial growth in business services, driven by computer system design, and a resurgence in manufacturing after Cyclone Gabrielle in the first quarter.
New Zealand’s Labour Party, trailing in the polls three weeks before the Oct. 14 election, was thrilled with the economic reversal.
“It’s a victory for the New Zealand economy and for the people who work hard every day to deliver high-quality jobs,” Finance Minister Grant Robertson told reporters.
The opposition has blamed the administration for record-high inflation and the faltering economy in this election.
“Present headwinds mean we still expect activity to slow over the next year, but the resilience of the New Zealand economy highlights the risk that OCR (official cash rate) settings will need to remain tight for a prolonged period to get inflation back into target,” ASB economists wrote.
RBNZ expects the economy to enter a recession in the second half of 2023.
The RBNZ has tightened policy since 1999, raising the cash rate by 525 basis points to 5.50% since October 2021. In May and August, it claimed it was likely done hiking.
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