Officials stated on Thursday that New Zealand’s economy grew at a considerably quicker rate than predicted in the second quarter, confirming expectations that the central bank will begin hiking interest rates despite a recent coronavirus outbreak.
Statistics New Zealand said that GDP increased by 2.8 percent in the three months to June, much exceeding a Reuters poll projection of 1.3 percent and the Reserve Bank of New Zealand’s (RBNZ) estimate of 0.7 percent.
The leap in growth followed a drop in unemployment to an 18-month low of 4.0 percent in the second quarter, as well as an increase in annual inflation to 3.3 percent, which is beyond the central bank’s 1-3 percent goal range.
“We expect the RBNZ to ‘see through’ near-term volatility and decrease monetary stimulus, beginning next month with a series of 25 basis point (rate) hikes,” Mark Smith, Senior Economist at ASB Bank, said.
After the country was placed under a COVID-19 lockdown last month due to a new outbreak of the Delta variant of COVID-19 in Auckland, the central bank postponed hiking rates, but signalled a boost was still on the cards.
At the next central bank meeting on October 6, the market has already priced in a 100 percent possibility of a 25 basis point raise.
The country was under a complete COVID-19 lockdown in the second quarter of last year, therefore annual GDP increased by 17.4 percent due to a relatively low base. According to a Reuters poll, a 16.3% rise.
The tourist sector drove growth in the second quarter, after the government created a trans-Tasman travel bubble with Australia.
New Zealand has recovered quickly from a recession last year, thanks in large part to its achievement in eradicating the coronavirus within its borders and reopening its domestic economy ahead of other advanced countries.
Until an outbreak of the extremely virulent Delta strain in August, the country had been virus-free for months. The country’s largest metropolis, Auckland, remains closed, although the rest of the country has reopened. The travel bubble with Australia, on the other hand, has been halted.