New Zealand’s Economic Growth

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s economy grew faster than forecast in the fourth quarter, pulling it out of recession. However, the improvement is not expected to change the central bank’s planned official cash rate cuts.

Government data released on Thursday showed gross domestic product rose 0.7% in the December quarter from the prior quarter, surpassing analysts’ expectations of 0.4% and the central bank’s forecast of 0.3%. This growth followed a revised 1.1% contraction in the third quarter.

Annual GDP decreased 1.1%, as reported by Statistics New Zealand, better than the expected 1.4% decline. The market’s reaction to the GDP data was muted, with the New Zealand dollar rising to $0.5821 from $0.5811 ahead of the release.

New Zealand’s central bank has cut the official cash rate by 175 basis points since August 2024 to 3.75%, and in February indicated two additional 25-basis-point cuts in April and May, with the possibility of a third cut later this year.

Michael Gordon, senior economist at Westpac, noted that the GDP figures favored the view that the central bank is likely to cut the rate just twice more. The improvement in growth offers relief to policymakers aiming to stabilize the economy after it slipped into a technical recession in the September quarter, marked by the worst decline outside the pandemic since 1991.

Statistics New Zealand reported that 11 out of 16 industries grew in the fourth quarter, primarily in rental, hiring and real estate services, retail trade, accommodation, and healthcare. Increased spending by international visitors also aided tourism sectors.

Jarrod Kerr, chief economist at Kiwibank, mentioned that while this is a positive sign in the economy’s recovery, there are still areas of weakness, particularly in construction. New Zealand faces external challenges, as U.S. President Donald Trump’s policies, including increased tariffs against key trading partners, have raised concerns about a potential global economic downturn, which could affect New Zealand, a significant exporter to China and the U.S.

Kerr warned that if global economic risks continue, a reduction in the cash rate below 3% might be necessary to realign the economy. The U.S. Federal Reserve recently held its rates steady and is anticipated to proceed cautiously with cuts this year, due to the possible inflationary impact of Trump’s economic measures, complicating the Reserve Bank of New Zealand’s monetary policy task.