New Zealand Prime Minister Christopher Luxon expects fewer citizens will leave the country as interest rates fall and the economy begins to recover from a prolonged slump.

SYDNEY—New Zealand’s farm-rich economy contracted by less than expected in the second quarter, but output was nevertheless weak with the central bank expected to continue cutting interest rates aggressively over coming months.

New Zealand faces another recession after the economy contracted in the second quarter, albeit less than economists and the central bank expected.