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Fall in New Zealand confidence raises spectre of deeper recession

Published 12/20/2022, 09:29 PM
Updated 12/20/2022, 09:30 PM
© Reuters. FILE PHOTO: People walk on Lambton Quay street in Wellington, New Zealand July 23, 2020.  REUTERS/Praveen Menon

By Lucy Craymer

WELLINGTON (Reuters) - Confidence in New Zealand has slumped in recent weeks, raising concerns the country might be headed toward a deeper recession than most have forecast.

The December ANZ Consumer Confidence survey released earlier on Wednesday dropped to its lowest since it began in 2004 and followed on from the Westpac quarterly confidence survey on Monday which also recorded its lowest level since it began in 1988. The ANZ Business Confidence survey also reached a record low.

"There can be no doubting the sombre economic mood across the nation at present," Bank of New Zealand Senior Economist Doug Steel said in a note.

"It all points to a deeper recession ahead than some would care to believe. A sharp increase in interest rates is no doubt part of the mix," Steel added.

New Zealand's central bank has undertaken an aggressive tightening cycle with rates now 400 basis points higher than in October 2021 as it tries to dampen inflation that is currently just below three-decade highs. Both it and New Zealand's Treasury department are forecasting the country to move into a shallow recession in the second quarter of 2023.

Third quarter economic growth showed that the country's economy continues to hold up well, gaining 2.0%.

Westpac Senior Economist Satish Ranchhod said in a note the combination of weakening business and consumer confidence reinforces expectations for a downturn the economy.

© Reuters. FILE PHOTO: People walk on Lambton Quay street in Wellington, New Zealand July 23, 2020.  REUTERS/Praveen Menon

"While that recession isn't expected to be deep, we're still looking at a protracted period of weak demand over the coming 18 months. And that will see unemployment pushing higher," Ranchhod added.

He said this slowdown was needed to cool inflation pressures but the business confidence survey did not show signs of cost pressures easing.

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