New Zealand: Economy slips into recession after interest rate hikes

New Zealand's economy has fallen into recession after the country's central bank aggressively raised interest rates to a 14-year high.

Its gross domestic product (GDP) fell by 0.1% in the first three months of the year, official figures show.

That followed a 0.7% contraction in the previous quarter, which means the economy is in a "technical recession".

The Reserve Bank of New Zealand (RBNZ) has increased the cost of borrowing sharply since October 2021.

New Zealand was one of the first countries to start raising rates in the wake of the pandemic and has outpaced the US Federal Reserve. Last month, the RBNZ increased its main interest rate to 5.5%.

People in New Zealand, who were already facing rising prices, are now feeling the impact of higher rates as mortgage repayments and the cost of other loans jump.

"Interest rates are crippling," David Jordan, an Auckland-based web engineer told the BBC.

"I have seen many job losses in my industry as start-ups try to save money, though consultancies working with big global firms seem to be faring better," he added.

Central banks around the world increased the cost of borrowing as they tried to curb price rises that were triggered as economies opened up after the Covid lockdowns.

Inflation was also driven higher by the rising cost of everything from fuel to food, due to the Ukraine war.

In the first three months of this year, New Zealand's economy was also impacted by Cyclones Hale and Gabrielle and teachers' strikes.

"The adverse weather events caused by the cyclones contributed to falls in horticulture and transport support services, as well as disrupted education services," Jason Attewell, economic and environmental insights general manager at Statistics New Zealand said in a statement.

A technical recession is defined by an economy shrinking for three-month periods, or quarters, in a row.

Earlier, the RBNZ signalled that it had no further plans for further hikes. The contraction adds to expectations that the central bank will not raise rates again in the foreseeable future.