Construction, manufacturing, and services drive sharper-than-expected fall
New Zealand’s economy contracted by 0.9% in the June 2025 quarter, a steeper fall than economists and the Reserve Bank had forecast, according to Westpac NZ senior economist Michael Gordon. Annual GDP also declined 0.6%, the same rate of fall recorded in the March quarter.
Gordon explained that seasonal effects continue to play a role in the volatility of the GDP data.
“The GDP figures have a large seasonal component that is not being fully captured at the moment. This contributed 0.6ppts of the June quarter decline, even larger than the 0.5ppts that we had allowed for. That still suggests an underlying decline in activity for the quarter, against our estimate of a small rise,” Gordon said.
The construction industry remained one of the biggest drags, contracting 1.8% as projects consented in earlier years kept drying up. Gordon pointed out that this was part of a prolonged downturn for the sector, which has been weighing on overall growth for several quarters.
Manufacturing also slumped 3.5%, which Gordon described as partly an unwinding of the unusual jump in March that Westpac had considered more likely to be noise in the survey than a genuine improvement. Professional services edged lower too, slipping 0.4% and erasing some of the strong gains made earlier in the year.
Other parts of the economy were more resilient. Wholesale trade and retail posted growth, though Gordon said retail spending was weaker than suggested by earlier survey data. The information and telecommunications sector recorded a 1.8% rise, rebounding after two straight quarters of contraction.
Two sectors delivered the biggest surprises compared with Westpac’s forecasts. Gordon said financial services output fell by 0.5%, its second consecutive decline, even though lending activity has been picking up as borrowing costs come down. He suggested this may reflect a fall in value-added output rather than overall volumes.
Healthcare also slipped by 0.7%, against expectations of an increase. Gordon said it was unclear what drove the shortfall, noting that Stats NZ had to rely on an alternative data source due to unusual seasonal patterns.
Gordon said the softer GDP figures will likely add to the case for further cuts to the Official Cash Rate this year. Still, he noted that conditions in the current quarter look somewhat better.
“Our view is that September quarter GDP growth was already tracking better than the RBNZ’s (very soft) forecast, and there are aspects of today’s figures that could see an offsetting bounce next quarter, further boosting the reported growth rate,” Gordon said.
In the meantime, Westpac will take a closer look at the details to assess whether the current weakness is likely to persist or if a rebound is more likely in the second half of the year.
