WELLINGTON, Sept 26: New Zealand fell into its first recession for a decade during the first half of this year as the global credit crunch took hold, official figures showed on Friday.

Tight credit conditions and rising food and fuel prices cramped household spending, while drought cut production in key agricultural industries, Statistics New Zealand said.

New Zealand’s gross domestic product shrank 0.2pc in the three months to June, following a 0.3 contraction in the March quarter, the government agency said.

Economists commonly define two straight quarters of economic decline as a recession.

The second quarter decline was expected, although it was smaller than forecast, with economists having predicted a contraction of around 0.5 per cent.

Average economic growth for the year to June amounted to 2.6pc, the government agency said.

New Zealand was last in recession in the second half of 1997 and early 1998 amid the Asian financial crisis.

No immediate relief was in sight, with a survey of forecasters by the New Zealand Institute of Economic Research showing most economists were expecting another decline in the September quarter.

Finance Minister Michael Cullen tried to put a positive spin on the figures, pointing to the smaller than expected decline in the June quarter.

The recession is bad news for Prime Minister Helen Clark’s government with an election to be held on Nov 8, but Cullen said a return to positive growth was likely by the final quarter of the year.

“We started this year having to adjust to very real challenges arising from the combination of slowing global growth, rising international oil and food prices and rising credit costs in the wake of the credit crunch in the United States,” Cullen said.

“These challenges were not of New Zealanders’ making, but we have come through this challenging patch and are on our way back to growth supported by a number of positives.”

He cited low unemployment, strong government finances and personal income tax cuts from the beginning of October as pointing the way to recovery.

The data for the June quarter showed weakness across the board with household consumption falling 0.3 per cent, following a 0.4 per cent decline in the previous three months.

Service industries recorded their first quarterly decline since 2002, and goods-producing industries’ output eased 0.2 per cent in the quarter.

Export volumes declined 0.2 per cent, mainly due to a 17.7 per cent slump in key dairy exports amid the drought.—AFP