The New Zealand economy grew by 1.7% during the June quarter, confirming that the country has managed to defy the odds and not go into a recession. This has been a positive result following a poor showing in the March quarter that saw the economy decline by 0.2%.
Financial experts had predicted that the new gross domestic product (GDP) figures would point to the country having avoided a recession. There was however still some concern as to what this would mean for the economy.
While positive economic growth indicates improvement, it may not be good news for borrowers. With this outcome being partly attributed to the Reserve Bank’s decision to keep interest rates high as means of controlling spiralling inflation, it is also expected to hit borrowers hard.
Mark Smith, a senior economist at ASB, is predicting the OCR will peak at 4.25% in February 2023. He acknowledged that GDP growth had been stronger than anticipated and would likely give momentum to similar growth in the second half of the year. He added that this would likely result in more persistent inflationary pressures.
However, the government remains upbeat about the future according to Deputy Prime Minister Grant Robertson. Speaking at a breakfast briefing hosted by Westpac, Robertson noted that the country’s exports were in high demand as the country offered something the world needed. However, figures indicate that though export figures have risen in the June quarter, the country remained in a trade deficit.
Robertson also highlighted the improvement in the tourism sector, highlighting how Queenstown’s ski season was now back to 80% of pre-Covid times. Ruvani Ratnayake of Statistics NZ confirmed that with border re-openings and the easing of local and global restrictions on travel, there had been an uptick in spending on transport, accommodation and recreational activities by both locals and foreign visitors during the June quarter.
To help address labour shortages, Robertson confirmed that 7,200 job applications had been approved so far, with an additional 25,000 working holiday scheme applications having been approved from May. He emphasized a need for the economy to be resilient and diversified, and that the government was focused on helping achieve this goal.
National party finance spokeswoman, Nicola Willis, is however not as optimistic, saying that the economy was still underachieving. She noted that inflation was still at record-high levels and that real wages had fallen by 3.7% in the past year, meaning that most people were not earning enough to keep up with rising prices.
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