New Zealand faces another recession after the economy contracted in the second quarter, albeit less than economists and the central bank expected.

Gross domestic product declined 0.2% from the previous quarter, when it gained a revised 0.1%, Statistics New Zealand said Thursday in Wellington. Economists expected a 0.4% contraction while the Reserve Bank projected a 0.5% drop. GDP fell 0.5% from the year-earlier quarter, less than the estimated 0.6% decline.

The economy’s prolonged slump and signs that inflation is back under control prompted the RBNZ to start its easing cycle last month - much sooner than it had previously indicated. The central bank expects the economy to shrink again in the current quarter, which would be its second recession in less than two years. 

The New Zealand dollar was little changed after the report, buying 62.17 US cents at 11:05 a.m. in Wellington.

Investors see a 50% chance that the RBNZ will deliver a 50-basis-point cut when it next decides on rates on Oct. 9. The Federal Reserve began its easing cycle overnight with a 50-point move in a bid to shore up the US economy.

Statistics NZ revised GDP for the fourth quarter of 2023 to unchanged from a previously reported decline, meaning the nation was not technically in recession in the second half of last year. Still, the economy has contracted in four of the past seven quarters. 

High interest rates have pushed the manufacturing and service sectors into extended downturns, unemployment is rising and house prices are falling. 

In May, the RBNZ held the Official Cash Rate at 5.5% but said it had considered another rate increase. It also said it wouldn’t cut rates until the second half of 2025. That outlook weighed on business and consumer confidence.

Further cooling activity, population growth in the three months through June was the slowest in two years.

Confidence has rebounded after the RBNZ pivoted to easing on Aug. 14, cutting the OCR to 5.25%, and the economy is projected to recover over 2025 as interest rates continue to fall.

Investors are pricing 75 basis points of cuts across the two remaining RBNZ meetings this year, according to swaps data. Most economists project two 25-point reductions.

The main drivers of the second-quarter contraction were primary industries such as mining and forestry, construction and retail trade, the statistics agency said. 

GDP per capita shrank 0.5% from the first quarter, its fourth straight quarterly decline, today’s report showed.

  - Bloomberg