New Zealand has fallen into recession as the economy contracted in Q1, according to data out last Thursday.

GDP shrank 0.1% between January and March, matching analysts' forecasts, but remained far short of the Reserve Bank of New Zealand's (RBNZ) prediction of 0.3% growth. 

In addition, Q4 GDP was revised to a 0.7% contraction from a 0.6% decline. 

The New Zealand Dollar fell 0.2% to $0.6197 after the data was published as it was in line with market forecasts, fuelling expectations the central bank would no longer need to hike rates. 

Statistics New Zealand data showed the economic weakness was broad-based, with output from half of New Zealand's industries contracting. 

"It's clear that the New Zealand economy is losing momentum," said Westpac senior economist Michael Gordon. "What remains to be seen is whether things have slowed enough to put us on a path back to low and stable inflation."

In addition, employment is still strong in New Zealand, curbing the recessionary impact for many people in the country, Reuters news agency reports.

Nevertheless, even though the recession is technical following two quarters of contraction, it has become an important political issue ahead of the elections in October.

As it stands, inflation in New Zealand is 6.7%, far above the Reserve Bank's target of 1% to 3%.

According to economists, the central bank will welcome the momentum slowdown. The RBNZ stated it was attempting to engineer a recession to curb inflation during its most aggressive policy-tightening stance since 1999.

The cash rate, now at 5.5%, has increased by 525 basis points since October 2021. During last month's meeting, the central bank said the cash rate had now reached a peak.

"As demand-side pressures on inflation continue to abate, the case for rate cuts will become increasingly compelling," said Capital Economics economist Abhijit Surya.