New Zealand's residential construction activity dropped to a four-year low last quarter, suggesting the economy may be entering another recession.

According to Statistics New Zealand, spending in constant prices, reflecting volume, declined to NZ$5.2 billion in the three months ending in June.

This is the lowest level since the same period in 2020, when the country was under lockdown during the pandemic.

Economists generally predict that the economy contracted in Q2 due to high interest rates dampening spending and investment, Bloomberg reports.

The Reserve Bank, which began an easing cycle last month, also expects that economic activity shrank in the third quarter, potentially leading to the country’s third recession in under two years.

Thursday’s report revealed that residential construction in New Zealand fell for the seventh consecutive quarter, decreasing by 0.7% compared to the first three months of the year. Overall building activity, including non-residential projects, dropped by 0.2%. 

The statistics agency is set to release second-quarter GDP data on 19th September. Recent reports have also indicated declines in exports and retail sales, which bolster expectations of an economic contraction.

Furthermore, construction activity has been hit hard by rising costs for both materials and financing, leading to a slowdown as buyers and developers step back.  Home-building approvals in the 12 months through July were down 22% compared to the previous year.  

In addition, industry sentiment remains weak. Fletcher Building, New Zealand's largest supplier of wallboard, timber, and other construction materials, reported last month that its materials and distribution business is under pressure, with volumes expected to decline by at least an additional 10% in the year through June 2025.