New Zealand Economy Hits Bump in First Quarter

The New Zealand economy suffered a setback in the first quarter, with GDP only growing 0.2 percent, the slowest growth in two years. The downfall is attributed to slowdowns in the dairy industry and the mining sector.

The New Zealand economy suffered a setback in the first quarter, with GDP only growing 0.2 percent, the slowest growth in two years. The downfall is attributed to slowdowns in the dairy industry and the mining sector.

New Zealand’s dairy industry fell 2.3 percent in Q1, due to lower production caused by drought in certain parts of the country, and dairy prices fell to levels not seen in six years. In mining, the sector dropped 7.8 percent in output because of falls in oil and gas exploration and activity. Overall, New Zealand’s most important industries fell 2.9 percent. The shortfalls fell below analyst forecasts, and the results caused the New Zealand dollar to fall by 1.0 percent. The country’s central bank cut rates in response to lower dairy prices and waning inflation, and the bank is considering further cuts if necessary.

However, the business service sector shot up 2.1 percent, and tourism spending increased by 2.4 percent. The transportation sector also surged by 2.5 percent as international air transportation took the lead. New Zealand’s international business ventures are also responsible for a 6.1-percent increase because of prominent events that included the Cricket World Cup.

New Zealand may not be performing up to analyst expectations, contrasting with the popular view that New Zealand is a booming economy, but the nation remains strong going forward. HSBC pegged New Zealand as a “rock star” economy, and the nation was the fastest growing of Organization for Economic Cooperation and Development (OECD) nations in 2014. New Zealand’s economy is still undergoing a healthy combination of low inflation and strong economic growth, but weakness in the global economy has caused a domino effect of economic stagnation. In New Zealand’s case, the slowdown in the world economy means that there are plenty of goods and workers available at decent prices to satisfy the country’s demand. New Zealand has an even keel of supply and demand, especially in the labor force.

Labor force participation is at an all-time high, and part of the reason why labor demand is higher is because of inward migration. On the wage front, the living wage in New Zealand will be $19.25 an hour, which will take effect in July 2015. The increase in the living wage means that people would need to work less to meet necessities, including parents. The living wage was championed by many who were concerned about the 270,000 children living in poverty because parents could not make enough to meet standard of living requirements. The July living wage will stretch into 2016.