recession

PHOTO: New Zealand is in a Reserve Bank orchestrated recession. FILE

New Zealand has slipped into a recession after the country’s central bank dramatically raised interest rates to a 14-year high. Chief economist at ANZ New Zealand, Sharon Zollner, says that GDP fell 0.1%, citing cyclones and labour shortages as other factors contributing to GDP decline.

New Zealand’s current recession can be attributed to a combination of factors, including high government spending and the decision by the Reserve Bank to lift the Official Cash Rate (OCR). These actions have contributed to a decline in economic growth and overall financial instability in the country.

The decision by the Reserve Bank to raise the OCR can have adverse effects on economic growth. The OCR is the interest rate at which commercial banks borrow and lend funds to each other on an overnight basis. When the OCR is increased, it becomes more expensive for businesses and consumers to borrow money, leading to reduced investment and spending. This, in turn, can lead to decreased production, lower employment rates, and a decline in overall economic activity.

In combination, high government spending and a raised OCR can create a detrimental feedback loop. The increased government spending puts pressure on the economy, and the raised OCR further hampers economic growth. This has led to decreased business confidence, reduced investment, and ultimately a recessionary period for the country.

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