- Written by Peter Hoskins
- business reporter
image source, Getty Images
New Zealand's economy has fallen into recession after the central bank aggressively raised interest rates to the highest level in 14 years.
According to official figures, gross domestic product (GDP) fell by 0.1% in the first three months of this year.
This follows a 0.7% contraction in the previous quarter and means the economy is in a “technical recession.”
The Reserve Bank of New Zealand (RBNZ) has significantly increased borrowing costs from October 2021.
New Zealand was one of the first countries to raise interest rates in response to the pandemic, outpacing the US Federal Reserve. Last month, the RBNZ raised its key interest rate to 5.5%.
New Zealanders who were already facing rising prices are now feeling the impact of rising interest rates as the cost of mortgage repayments and other loans soars.
“Interest rates are devastating,” Auckland-based web engineer David Jordan told the BBC.
He added: “In my industry, I've seen a lot of jobs being lost as startups try to save money, but consulting firms that work with large global companies are faring better.'' It seems so,” he added.
Central banks around the world have raised borrowing costs in an attempt to contain price increases caused by the opening up of economies after coronavirus lockdowns.
Inflation has also increased due to rising prices for everything from fuel to food due to the war in Ukraine.
“The severe weather caused by the cyclone has resulted in reduced horticulture and transport support services and disruption to education services,” Statistics New Zealand general manager economic and environmental insights Jason Attewell said in a statement.
A technical recession is defined by an economy contracting for three consecutive months or quarters.
Earlier, the RBNZ indicated there were no plans for further rate hikes. The contraction has raised expectations that the central bank will not raise interest rates in the near future.
