New Zealand economy shrinks as exports fall

Band Lucy Craymer

WELLINGTON, June 16 (Reuters)New Zealand’s economy contracted unexpectedly in the first quarter as a slump in exports overwhelmed strong domestic spending, although many analysts believe it will avoid a recession as activity rebounds from the coronavirus lockdowns.

Output-based output fell 0.2% in the quarter, Statistics NZ showed on Thursday. The figure was below economists’ median expectations of a 0.6% rise and significantly lower than the 3.0% rise in the December quarter, when the country benefited from emerging from COVID-related lockdowns.

Last month, the Reserve Bank of New Zealand (RBNZ) forecast growth of 0.7% for the March quarter.

Annual GDP rose 1.2%, below a Reuters poll forecast for a 2.7% rise.

Statistics New Zealand said primary industries were behind the decline, while goods-producing industries also saw a slight decline.

“We have seen a decline in production in the food, beverage and tobacco manufacturing subsector, as well as in the agriculture, forestry and fishing industry,” Ruvani said. Ratnayake, senior director of national accounts and production industry at Statistics New Zealand, in a statement.

New Zealand’s economy in the first quarter was hit by the country’s first major national outbreak of coronavirus infections as the Omicron variant spread. Even so, the data showed that domestic demand remained strong.

New Zealand’s central bank has already raised rates five times since October and has indicated it will double the exchange rate over the next year to try to keep inflation under control. He said at this point that containing runaway inflation was worth taking the risk of tipping the economy into recession.

However, markets have now reduced their more aggressive rate hike calls with two-year swaps down 23 basis points to 4.31% since Wednesday. The New Zealand Dollar also fell slightly on weaker than expected growth data.

(Reporting by Lucy Craymer Editing by Chris Reese and Aurora Ellis)

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