New Zealand exits recession as Q4 growth beats forecasts
The improvement is welcome relief to policymakers keen to put the economy back on solid footing after a technical recession in September
[WELLINGTON] New Zealand’s economy grew faster than forecast in the fourth quarter, dragging the economy out of recession, but the improvement is not expected to change the central bank’s planned official cash rate cuts.
Government data released on Thursday (Mar 20) showed gross domestic product rose 0.7 per cent in the December quarter from the prior quarter, better than analysts’ expectations of a 0.4 per cent increase and the central bank’s forecast of 0.3 per cent. The growth followed a revised 1.1 per cent contraction in Q3.
Annual GDP decreased by 1.1 per cent, Statistics New Zealand data showed. The market had expected a fall of 1.4 per cent.
Market reaction to the GDP data was muted, with the New Zealand dollar rising to US$0.5821 from US$0.5811 ahead of the release.
The Reserve Bank of New Zealand has cut the official cash rate by 175 basis points since August 2024 to 3.75 per cent. In February, it foreshadowed two further 25-basis-point cuts in April and May, with a possibility of a third cut later in the year.
Michael Gordon, senior economist at Westpac, said in a note that he believed these GDP figures favoured the view that the central bank is more likely to cut the rate just twice more.
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The improvement in growth will provide some welcome relief to policymakers keen to put the economy back on a solid footing after it sank into a technical recession in the September quarter. The two-quarter GDP decline was the worst outside of the pandemic since the sharp downturn of 1991.
Statistics New Zealand said 11 of the 16 industries increased in Q4. The largest rises were from rental, hiring and real estate services, retail trade and accommodation, and healthcare and social assistance. It added that higher spending by international visitors also boosted tourism-related industries.
Jarrod Kerr, chief economist at Kiwibank, said while this was the first step in the economy’s recovery and green shoots had emerged, there were still pockets of significant weakness such as construction.
New Zealand also faces external headwinds. Risks to growth this year have risen as US President Donald Trump’s policies, led by ramped-up tariffs against major trading partners, have raised fears about a broader economic downturn globally. That could impact New Zealand, as it exports heavily to both China and the United States.
Kerr said that if the downside risks to the global outlook persisted, then “a move to a cash rate below 3 per cent may be needed to get us back on track”.
The US Federal Reserve on Wednesday held rates steady and is expected to go slow on cuts this year due to the potential inflationary effect of Trump’s economic policies, which could complicate the Reserve Bank of New Zealand’s monetary policy task. REUTERS
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