New Zealand's Economy Contracts in Second Quarter, Central Bank Expected to Cut Rates
By Lucy Craymer
New Zealand's economy saw a contraction in the second quarter as major industries experienced a decline in activity, setting the stage for further rate cuts by the central bank.
The latest official data revealed a 0.2% decrease in gross domestic product for the June quarter, surpassing analysts' expectations of a 0.4% contraction. This followed a revised down 0.1% growth in the first quarter.
Annual GDP also declined by 0.5%, in line with market predictions, indicating a weak economic performance.
Market sentiment suggests another quarter-point rate cut in October, with a possibility of a 50 basis points reduction. Overall, there is an expectation of 84 basis points of easing by the end of the year.
Experts note that private demand remains soft, impacting various sectors of the economy. The data showed a decrease in activity in nine out of 16 industries, with notable weaknesses in retail trade, agriculture, forestry, and fishing sectors.
Despite the challenging economic environment, the Reserve Bank of New Zealand is expected to implement further rate cuts to stimulate growth. The central bank's Governor has indicated a potential for two more cuts by the end of the year.
Global trends also indicate a shift towards rate cuts by major central banks, following the U.S. Federal Reserve's recent decision to reduce interest rates. This could have implications for New Zealand's monetary policy.
Financial markets are closely monitoring the situation, with expectations that the Reserve Bank of New Zealand may align its easing strategy with global trends. However, local data does not currently support an acceleration of rate cuts beyond the central bank's existing plans.
In conclusion, the economic data from New Zealand highlights challenges in the country's economy, with implications for monetary policy and interest rates. Investors and individuals should stay informed about central bank decisions and global economic trends to make informed financial decisions.