July 14, 2024

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New Zealand economy emerges from recession but remains at risk – TradingView News

New Zealand economy emerges from recession but remains at risk – TradingView News

Inves

New Zealand has emerged from a recession that saw two consecutive quarters of economic contraction over an 18-month period.

Official figures released on Thursday showed the country’s gross domestic product (GDP) grew by 0.2 percent in the first quarter of the year, following a 0.1 percent drop in the previous quarter.

This modest growth, driven primarily by population growth due to record immigration, has not allayed concerns about the underlying health of the economy.

Economic growth driven by population growth

Although the slight recovery in GDP was more than expected, it was met with little enthusiasm. A major driver of this growth is population growth from unprecedented levels of immigration.

On a per capita basis, New Zealand’s GDP actually fell 0.3 percent in the first quarter, marking the sixth consecutive quarter of decline. This suggests that apparent economic growth hides deep structural weaknesses.

Persistent economic challenges

Despite emerging from recession, New Zealand’s economy continues to face significant challenges. High inflation and high borrowing costs cast a long shadow over the economic outlook.

Finance Minister Nicola Willis acknowledged the difficulties facing New Zealanders who are still struggling with the current cost of living crisis.

The government has stressed the need for prudent financial management and low taxes to help reduce economic pressure on households.

The fallout from the COVID-19 pandemic has had lasting impacts on New Zealand’s key economic sectors, particularly agriculture and tourism. These sectors, critical to the country’s economy, were hit hard during the pandemic and have been slow to recover.

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A decision by the Reserve Bank of New Zealand to raise interest rates to a 14-year high in a bid to curb high inflation rates in developed countries further dampened economic activity.

Government response and future prospects

In response to economic challenges, Prime Minister Christopher Lacson’s centre-right coalition government unveiled a budget last month that included tax cuts worth NZ$14.7 billion ($9 billion) over the next four years.

The tax strategy aims to stimulate economic growth and provide relief to New Zealanders burdened by high living costs. However, the effectiveness of these measures in achieving sustainable economic recovery remains to be seen.

Economists noted that while GDP growth headlines suggest a recovery, fundamental data continue to reveal economic weakness.

Specific sector struggles and potential recovery

The agricultural sector, a cornerstone of New Zealand’s economy, continues to face challenges. The pandemic has disrupted supply chains and reduced demand for agricultural exports, while adverse weather conditions have exacerbated these challenges.

Efforts to increase agricultural production and diversify export markets are necessary to revive the sector.

Tourism, another key sector, is struggling to regain pre-pandemic momentum. Restrictions on international travel and ongoing health concerns have hampered the recovery of tourism, which previously contributed significantly to New Zealand’s GDP.

The government and industry stakeholders are working on strategies to attract tourists back to the country, but the sector’s recovery is expected to be gradual.

Conclusion

New Zealand’s recovery from recession marks a positive step, but the economy remains on shaky ground. Growth driven by population growth due to high immigration is insufficient to address the deep structural problems plaguing the economy.

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High inflation, high borrowing costs and struggles in certain sectors continue to pose significant challenges. The government’s budget proposal and fiscal strategies aim to stimulate growth, but their success depends on addressing underlying economic weaknesses and fostering a sustainable recovery.