A Recession Raises The Probability Of Deep Rate Cuts For New Zealand
The slowing in global growth has claimed another casualty. Statistics New Zealand confirmed what many analysts and traders had expected today, that the economy had tipped into a recession through the first half of this year.
While this second quarter contraction was more modest that what policy officials had expected, it was nonetheless the first official recession for the economy in 10 years. Looking at the details of the report, all of the sectors that RBNZ Governor Alan Bollard said were holding up inflation six months to a year ago are now solidly in the red. Construction activity dropped 3.8 percent through the period, consumer spending fell 1.9 percent and financial services contracted 0.7 percent. This certainly will put a damper on the broader carry trade as the 150 basis points of easing expected from New Zealand over the coming year could be dealt in quick order. With the return potential from the carry strategy dropping fast, a recovery could be delayed even if risk eases.
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