Will the fall in GDP affect the monetary stance of the RBNZ at the next MPC? IG News

Irshadgul News report,

New Zealand’s GDP fell 0.2% in the March 2022 quarter, Stats NZ said today. This suggests that New Zealand’s economy shrank in the first quarter of the year.

The fall in GDP has come as a disappointment, as most economists had expected zero growth or modest growth in GDP. Stats NZ reported that the Omicron boom and related lockdowns resulted in a 0.02% drop in GDP in three months. It was up 3% in the previous quarter.
Also read: Inflation concerns: OECD asks NZ government to take targeted action

ALSO READ: Why New Zealand’s business sentiment remains low despite a partial lift in restrictions?

Most banks, including ANZ, BNZ and Westpac, had expected zero growth in GDP, while the Reserve Bank of New Zealand in its final monetary policy statement released in May projected a growth of 0.7%.

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New Zealand is one of the last countries to report its GDP figures to the Organization for Economic Co-operation and Development (OECD) and most OECD countries have recorded an average growth of 0.3%. New Zealand is the only country that has shown a decline of 0.2%.

Will it stop RBNZ?

What does this mean for the monetary stance of the RBNZ? Although the new GDP figures do not indicate that New Zealand is entering a recession, it does indicate a slowdown in economic activity. According to economists, it is unlikely that the Reserve Bank of New Zealand (RBNZ) will change its monetary policy stance. He says tackling inflation is unlikely to deter RBNZ from raising borrowing costs, which could exceed 7% for the quarter.
Also read: What is stagflation? How is it different from inflation?

Growth is expected to pick up from the June quarter. A flatter first trimester is not as dangerous as a bounce-back in the second trimester. Most economists predict that growth will pick up, though with declining home prices and increasing global uncertainty.

Disruption due to COVID-19

The first three months were bad for the economy as Omicron spread across the country for the first time. There were severe levels of lockdown that left industries short of labor and customers as they isolate themselves or work from home. Even the tourism industry was grappling with the closure of borders and non-availability of tourists. Even domestic tourism was down due to the Omicron boom. The government has now started opening the borders, which will be fully opened to all travelers from July. Even fuel tax was cut in mid-March to provide relief to consumers. Al it will be reflected in the GDP figures for the next quarter, therefore, the RBNZ will remain unaffected.

Also read: NZ growth returns to December quarter, GDP up 3%

Most economists see another 50 bps hike in July before the central bank makes some adjustments. It may be recalled that RBNZ began increasing the OCR in October and announced two 50 bps hikes, already bringing it down to 2%. Economists are seeing an increase of 3.5 to 4% by the end of the year.

other details

RBNZ said there was less production in food and beverage, tobacco manufacturing etc. Omicron bearish in Q1 will lead to a rally in Q2.

Some parts of the economy were doing well but capacity pressure was building up.

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