Economists see less slack, but no rush to raise rates
New Zealand’s gross domestic product (GDP) rose 1.1% in the September 2025 quarter, rebounding from a 1% fall in June and outpacing most forecasts.
“GDP rose in three of the last four quarters, but fell 0.5% over the year ended September 2025 compared with the year ended September 2024,” economic growth spokesperson Jason Attewell (pictured upper left) said in a media release.
“The 1.1% rise in economic activity in the September 2025 quarter was broad-based, with increases in 14 out of 16 industries. This is in contrast to the June 2025 quarter, when GDP decreased in 10 industries.”
Business services were the largest contributor, up 1.6% on the quarter, driven by a 2.1% lift in professional, scientific, and technical services. Manufacturing rose 2.2%, led by food, beverage, and tobacco manufacturing. Information media and telecommunications fell 2.1%, while GDP per capita rose 0.9%.
Spending and investment gather pace
On the expenditure side, GDP increased 1.3% in the September quarter, following a 0.8% drop in June.
Exports were up 3.3%, with gains in travel services, dairy, and other services including insurance. Gross fixed capital formation rose 3.2% as businesses lifted spending on transport equipment and plant, machinery, and equipment.
“Businesses invested more in physical fixed assets in the September quarter,” Attewell said. “There were increases in transport equipment and plant, machinery, and equipment, supported by imports of related capital goods and motor vehicles.”
Household consumption nudged 0.1% higher. Durable goods spending climbed 2%, offsetting small declines in services (‑0.1%) and non‑durables (‑0.2%), driven by audio‑visual equipment and motor vehicles.
“The retail trade survey also showed increased spending on durables in the September quarter, with motor vehicle and parts retailing up 7.2%, and electrical and electronic goods retailing up 9.8%,” Attewell said.
ASB: less spare capacity, OCR risk tilted up
ASB economists Wesley Tanuvasa (pictured upper right) and Mark Smith (pictured lower left) said the stronger‑than‑expected outcome suggests the economy is operating with less slack than the Reserve Bank (RBNZ) assumed in its November Monetary Policy Statement, particularly given solid goods production and business services growth.
“While the next OCR move is more likely to be up rather than down, the OCR remains conditional on the economic and inflation outlook,” they said. “Although growth is welcome, the economic hole remains big, and stimulatory policy settings are required to climb out.”
ASB highlighted ongoing “noise” in the GDP data – including unusually large seasonal balancing items and recent revisions – and said the central bank is likely to wait for the Q4 Quarterly Survey of Business Opinion (13 January 2026) and labour market data (4 February 2026) before reassessing capacity pressures.
“While we welcome growth, GDP alone is unlikely to be the silver bullet to bring hikes forward,” they said. “The release remains noisy, and GDP data is one of a myriad of inputs that influence the interest rate outlook.”
Markets are currently pricing in OCR hikes from around October 2026, earlier than the early‑2027 path signalled by the RBNZ.
Westpac: upside surprise, but no case for extra tightening
Westpac senior economist Michael Gordon (pictured lower right) said the 1.1% quarterly rise was “ahead of our 0.9% pick and at the top of the range of market forecasts.”
From the RBNZ’s perspective, Gordon said, the release points to less excess capacity than previously assumed, but does not by itself justify markets pricing in significantly more tightening.
“This is in the end a stronger outcome than the RBNZ thought at the November Monetary Policy Statement and will imply an assessment of less excess capacity,” he said. “However, we should remember that market pricing is well ahead of the RBNZ right now, and hence there’s likely no need to be pricing in significant additional tightening in 2026.”
Households and businesses starting to heal
ASB’s economists pointed to signs of gradual repair in household finances, with real gross national disposable income up 0.7% in Q3 and real incomes per capita up 0.5%. They estimate about 40% of mortgages will refix over coming months, potentially lowering the effective mortgage rate by around 60 basis points to about 4.7% by the end of next year, supporting spending.
Business investment also looks more optimistic: gross fixed capital formation rose 3.2%, with business investment up 3.6%, including a 4.9% lift in plant, machinery and equipment and a 15.7% jump in transport equipment. ASB said this reflects easing uncertainty and government investment incentives, and that “lower interest rates can keep investment more resilient than otherwise” into 2026.
The RBNZ’s next official cash rate decision is due on 18 February 2026, with both ASB and Westpac expecting the central bank to hold steady while it waits for more evidence on how persistent the recovery – and underlying inflation pressures – really are.
For more information, read the ASB and Westpac insights.
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