Quarterly growth lifts to 0.8%, but economists warn momentum may fade
New Zealand’s economy expanded by 0.8% in the March quarter, slightly ahead of market expectations and up from a revised 0.5% in Q4, Stats NZ data showed.
This marked the strongest quarterly growth since early 2022.
“With the economy regaining its footing sooner than expected after last year’s sharp downturn, we continue to expect that the RBNZ will take the opportunity to pause and assess the situation at its July OCR review,” Westpac senior economist Michael Gordon (pictured left) said.
Broad-based growth, led by services and manufacturing
Gains were seen across nine of 16 industries. Professional services rose 2.7%, led by computing services, while manufacturing jumped 2.4%, buoyed by higher primary goods production.
“Economic activity lifted 0.8% over the March quarter. It’s nice to have some good news. But we’re holding our horses as we expect the current pace to dissipate over coming quarters,” Kiwibank economist Sabrina Delgado (pictured centre) said.
Construction posted its first quarterly lift in over a year, rising 0.5%, while primary industries grew 0.8% on the back of stronger agricultural output and a weaker Kiwi dollar.
Per capita growth still negative
Despite the headline result, the economy remained 0.7% below pre-recession levels, and GDP per capita was down 1.6% year-on-year.
“As a result, our recently revised forecasts for the Kiwi economy entail a slower pace of recovery ahead,” Delgado said. “It still feels harder than it should be to be a Kiwi.”
Q1 was strong, but risks remain
ASB economist Wesley Tanuvasa (pictured right) said the data was broadly in line with expectations.
“Growth reflects robust services activity, particularly business and transport services,” Tanuvasa said. “Manufacturing activity was as strong as expected... but services exports were much weaker than assumed.
“Household disposable income has repaired. This should improve as the year progresses.”
Outlook: Cautious optimism, but stagflation risks linger
All three banks noted downside risks from global headwinds, tariff volatility, and weak services exports.
Westpac’s Gordon warned of a mixed sector outlook: “There were some surprising declines in services such as communications, finance, real estate, and arts and recreation.”
ASB highlighted potential risks from rising oil prices and geopolitical tensions.
“Geopolitical deterioration in the Middle East has pushed oil prices up ~17% since May – presenting significant upside risk to the inflation outlook,” Tanuvasa said.
Still, the stronger-than-expected GDP result gives the Reserve Bank scope to hold the OCR steady at 3.25% in July, with analysts expecting a cautious approach amid mixed economic signals.
For more information, read the insights from Westpac, ASB, and Kiwibank.
