By Lucy Craymer
WELLINGTON (Reuters) – High-frequency data is consistent with the central bank’s view that New Zealand’s economy bottomed out in the middle of 2024 and started to slowly pick up in December, the chief economist of the Reserve Bank of New Zealand (RBNZ) said on Friday.
Paul Conway added in an interview with Reuters that some businesses should be starting to feel an improvement.
New Zealand’s economy sank into a recession in the third quarter of last year after recording it’s biggest six-month downturn outside of the pandemic since 1991. Fourth-quarter GDP data has yet to be released.
Conway said there were risks around the economic improvements “as its very difficult to pick the turning point.”
Data including on manufacturing and services “suggests that some business should already be starting to feel a bit of a turnaround,” Conway said, although he acknowledged companies would be wary.
“The labour market tends to lag economic activity. Businesses need to have confidence that growth is returning and that growth will be sustained into the future before they start to think about employing someone,” he said.
The central bank raised interest rates by 525 basis points to 5.5% in a series of increases that started in October 2021, but the higher borrowing costs took a heavy toll on the economy.
Since August last year, it has cut rates by 175 basis points as inflation eased and policymakers sought to revive growth.
Conway said the RBNZ considered cutting interest rates by both 25 basis points and 75 basis points ahead of Wednesday’s policy review, but it was clear to the committee that 50 basis points “was the way to go” given the state of the economy and inflation.
(Reporting by Lucy Craymer; Editing by Neil Fullick)
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