[WELLINGTON] New Zealand’s economic recovery from a 2024 recession gathered pace in the first quarter as the central bank lowered interest rates and exports surged.
Gross domestic product rose 0.8 per cent in the three months to March, accelerating from a downwardly revised 0.5 per cent growth in the fourth quarter, Statistics New Zealand said on Thursday (Jun 19) in Wellington. The result was slightly better than the 0.7 per cent growth expected by economists.
While the economy is still smaller than it was a year ago, its recovery will be welcomed by the government as it makes growth a key priority ahead of a 2026 election. That ambition is being tested by the uncertainty arising from global trade tensions, which is damping spending and investment and raising concerns that the expansion may weaken.
“Repair of the economy is underway but significant risks are apparent,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “Data since March suggest a sizeable deceleration in economic activity. Geopolitical deterioration in the Middle East presents upside risks to inflation and therefore pricing behaviour.”
The New Zealand dollar was little changed after the GDP report, buying 60.29 US cents at 11.30 am in Wellington. The yield on two-year government bonds rose two basis points to 3.44 per cent.
RBNZ easing
Buoying the economy, farm production improved in the quarter while food manufacturing also lifted, the statistics agency said.
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Taken together with high global commodity prices, that has seen a boost to rural incomes and growth in the regions, even as the cities have been encumbered by a sluggish housing market and cautious consumers.
Lower interest rates are expected to underpin steady growth in 2025 even as the Reserve Bank of New Zealand (RBNZ) hints it may be nearing the end of its easing cycle.
The central bank has cut the Official Cash Rate (OCR) aggressively, reducing the benchmark by 225 basis points since August to 3.25 per cent. Still, last month it removed an explicit easing bias ahead of its July decision.
Investors no longer see much chance of the OCR falling below 3 per cent this year, swaps data show.
“With the economy regaining its footing sooner than expected after last year’s sharp downturn, we continue to expect that the RBNZ will take the opportunity to pause and assess the situation at its July OCR review,” said Michael Gordon, senior economist at Westpac in Auckland.
Growth was stronger than the 0.4 per cent that both the RBNZ and the Treasury Department forecast. Treasury Chief Economist Dominick Stephens yesterday said that while recent data has been weak, he still expects growth to pick up in 2025.
From a year earlier, GDP fell 0.7 per cent, which was less than economists’ estimated 0.8 per cent decline. Still, the annual GDP contraction in the fourth quarter was revised to 1.3 per cent from 1.1 per cent.
Key drivers of the first-quarter expansion were farming and manufacturing, today’s report showed. Manufacturing grew 2.4 per cent and goods exports increased 3.6 per cent, led by primary products. Tourism fell.
GDP per capita rose 0.5 per cent from the fourth quarter, its second straight gain after more than two years of decline. BLOOMBERG
