Roving Periscope: After the US, China, and Eurozone, NZ’s economy also slips into recession

Virendra Pandit

New Delhi: After recessionary trends visible in the US, China, and Eurozone, New Zealand has also slipped into recession, threatening world economies to sink into the like of the Great Depression that roiled the planet from 1929 onwards and pushed the globe into the Second World War.

The media reported on Thursday that New Zealand’s economy has fallen into recession after the country’s central bank aggressively raised interest rates to a 14-year high. Its GDP fell by 0.1 percent in the first three months of 2023.

That followed a 0.7 percent contraction in the previous quarter. It means the economy is in a “technical recession” which is defined as an economy shrinking for three-month periods, or quarters, in a row. Two consecutive quarters of shrinking GDP is the threshold for a technical recession.

In the January-March period of 2023, New Zealand’s economy was also impacted by cyclones Hale and Gabrielle and teachers’ strikes.

Its central bank, the Reserve Bank of New Zealand (RBNZ), has increased the cost of borrowing sharply since October 2021. New Zealand was one of the first countries to raise interest rates after the Covid-19 pandemic and has outpaced the US Federal Reserve. Last month, the RBNZ increased its main interest rate to 5.5 percent.

Earlier, the RBNZ signaled it had no plans for further interest rate hikes. The contraction adds to expectations that the central bank will not raise rates again in the foreseeable future, the media reported.

But New Zealand is not alone. The pandemic, the post-pandemic recalibrations, and the Russian invasion of Ukraine in February 2022 have all combined to pull many economies down.

Inflation forced central banks worldwide to increase the cost of borrowing as they tried to curb price rises after the economies opened up post-lockdowns in 2020. The rising cost of everything from fuel to food, because of Russia’s invasion of Ukraine in February 2022, also drove inflation up.

In January-March 2023, even as the US and China battled against a recessionary trend, the Eurozone also entered into a technical recession. Data from the EU’s statistical agency, Eurostat, showed Eurozone’s economy shrunk by 0.1 percent for a second consecutive quarter. In the first three months of 2023, its GDP dropped by 0.1 percent in the euro area compared with the previous quarter. In the fourth quarter of 2022, GDP decreased by 0.1 percent.

Eurostat also revised downwards an earlier forecast that had predicted slight growth, after Germany said it had fallen into recession. The revision was mainly because of a second estimate from Germany’s statistics office showing that the Eurozone’s largest economy slipped into recession in early 2023.

This had been expected towards the 2022-end as the Eurozone wrestled with high energy and food prices and rising interest rates designed to curb inflation, but initial estimates suggested the region had avoided this. Along with Germany, GDP also declined quarter-on-quarter in Greece, Ireland, Lithuania, Malta, and the Netherlands.

Germany fell into a recession around the turn of the year, official figures showed, as Europe’s largest economy contracted by 0.3 percent over the first three months of 2023. The poor performance was the second consecutive quarter of negative growth, following a 0.5-percent contraction in the last three months of 2022, as Germany battled an energy crisis unleashed by Russia’s invasion of Ukraine.

The dwindling of energy supplies from Russia following the outbreak of the war sent prices soaring, stoking inflation and weighing on the economy. Germany, which had long been heavily reliant on Russian energy imports, was left particularly exposed following the Russian invasion.