New Zealand’s central bank delivered a stark assessment of the nation’s economic outlook on Tuesday, highlighting concerns over increasing unemployment and postponed business investments due to financial strain.
In its semi-annual Financial Stability Report, the Reserve Bank of New Zealand (RBNZ) noted that a decline in domestic economic activity had become increasingly evident. The bank attributed this downturn to a combination of sluggish global growth and elevated interest rates, which have dampened demand across various sectors.
“Rising unemployment is beginning to create severe financial challenges for some households,” the report stated.
The RBNZ further indicated that businesses are facing diminished profitability and weak demand, exacerbated by ongoing cost pressures that have complicated the trading environment for many firms. Over the past two years, New Zealand’s economic growth has been inconsistent, occasionally falling into negative territory.
The central bank projects that the economy contracted in the third quarter, as it raised the cash rate to moderate demand and control inflation. With unemployment on the rise, overall sentiment remains low.
Since August, the RBNZ has reduced the official cash rate by 75 basis points, reflecting easing inflation pressures.
During a press conference, RBNZ Governor Adrian Orr expressed concern that the real economy is lagging behind the interest rate cuts. “You don’t want surprises or shocks to the downside during that period,” he cautioned.
Despite these economic struggles, the RBNZ maintained that New Zealand’s financial system remains robust, with risks to the system being manageable. The bank acknowledged that while an uptick in non-performing loans is expected, levels are still below those seen during previous recessions.
Deputy Governor Christian Hawkesby emphasized that New Zealand banks are well-prepared to continue supporting households and businesses, stating they can effectively manage any potential loan defaults.
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