New Zealand enters recession after worst contraction since 1991

New Zealand’s economy officially entered a recession in the third quarter, with activity contracting much more sharply than anticipated. GDP fell by 1.0% in the September quarter, far exceeding forecasts of a 0.2% drop, while the June quarter was revised to show a 1.1% decline.

This marks the steepest two-quarter contraction, outside of the pandemic, since the severe downturn of 1991.

The grim data strengthens the case for more aggressive rate cuts by the Reserve Bank of New Zealand (RBNZ). Markets now anticipate a 70% chance of a 50-basis-point cut in February, with rates projected to fall to 3.0% by the end of 2025. The RBNZ has already reduced rates by 125 basis points to 4.25%.

The news sent the New Zealand dollar to a two-year low of $0.5614, exacerbated by hawkish moves from the U.S. Federal Reserve.