New Zealand tipped into recession

Tuesday 5th August 2008

New Zealand tipped into recession in the second quarter on dwindling domestic demand and rising costs for raw materials, fuel and food, according to the Treasury.

"Our view is that GDP growth was negative in the second quarter," the Treasury said in its monthly economic indicators report. "With continuing weak growth, inflation is expected to ease in the medium term."

The Treasury said it concurs with the central bank that inflation will peak at about 5% in the September quarter.

New Zealand's economy shrank 0.3% in the first quarter, led by agriculture and the construction industry. Two quarters of contraction, a technical recession, would be the first since 1998. Reserve Bank Governor Alan Bollard cut the official cash rate to 8% last month and said he may lower the rate again.

Figures on Thursday may show the jobless rate rose in the second quarter as a slowing economy reduced the need for companies to hire more workers. The unemployment rate rose to 3.8% from 3.6%, according to a Bloomberg News survey.

By Jonathan Underhill

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