Q1 GDP rose 0.8% q/q, slightly above our 0.7% forecast and stronger than the RBNZ’s 0.4%. Services and manufacturing drove the gains, while construction stabilised after a year of contraction. The economy has now posted back-to-back q/q expansions, but output remains below potential, Standard Chartered’s economists Bader Al Sarraf and Nicholas Chia report.
Perfecting the landing is another story
“New Zealand’s Q1 GDP expanded by 0.8% q/q (-0.7% y/y), marginally above our estimate (0.7% q/q), and stronger than the Reserve Bank of New Zealand’s (RBNZ’s) projection (0.4% q/q). This marks the second consecutive quarter of growth following last year’s technical recession, reinforcing signs that the economy has found a cyclical floor, in our view. Though the expansion is welcome, the economy remains fragile. Annual per capita GDP is still contracting, and headwinds from tariffs, waning consumer momentum and global volatility cloud the near-term outlook.”
“A breakdown of Q1 GDP growth reveals a modest but broadening rebound. Business services showed firm momentum (2.4% q/q), alongside stabilisation in manufacturing and construction. Although Q1 data paints a stronger starting point for 2025, high-frequency indicators since March suggest that activity may have already rolled over, with risks now tilting towards a stagflation-like dynamic.”
“We expect the RBNZ to hold rates steady in July, followed by a final cut in August to bring the terminal Official Cash Rate (OCR) to 3%. On one hand, the upside GDP surprise gives the bank breathing space. On the other, geopolitical tensions have pushed oil prices significantly higher since the May meeting, increasing the risk of a renewed inflation impulse. With the RBNZ already concerned about persistent price-setting behaviour, this could raise the bar for further easing, in our view.”
