Rate cuts still on track despite weak economy
ASB and Westpac economists both expect GDP to have shrunk in the June quarter but stress the weakness may look worse on paper than it really is. Both banks continue to forecast further OCR cuts, keeping relief in sight for households and mortgage borrowers.
Contraction expected in Q2 GDP
New Zealand’s economy is set to post another quarterly contraction, with GDP for the June quarter due on Sept. 18.
ASB economist Wesley Tanuvasa (pictured above) expects the economy contracted 0.3%, matching the Reserve Bank’s August Monetary Policy Statement pick. Tanuvasa said the downturn was driven by weaker manufacturing and construction, alongside a sizeable negative net exports contribution.
“The underlying message is that the NZ economy has decelerated over the June quarter – a view we’ve long held, and one that helped underpin the RBNZ’s dovish tilt in August,” he said.
Despite the softness, ASB still forecasts two further 25bp cuts this year, taking the OCR to 2.5% by December.
Westpac: Technical distortions at play
Westpac senior economist Michael Gordon (pictured right) sees a slightly larger decline of 0.4% in Q2 GDP but stressed that seasonal quirks are exaggerating the weakness.
“The single biggest contributor to our -0.4% forecast actually stems from a technical issue in how GDP is calculated, which leads to a gap between overall GDP and the sum of its parts,” Gordon said.
On an annual basis, Westpac expects growth of -0.1%, a modest improvement from -0.7% in March, suggesting the economy is stabilising but lacks momentum.
“We don’t expect a negative GDP outturn to spur the market to price in more than the further 50bps of easing that the RBNZ has already signalled,” Gordon said.
Outlook: Lower rates to support recovery
ASB and Westpac both agree that rate cuts remain the key lever for recovery. Lower borrowing costs are expected to support domestic spending and residential investment from late 2025, while export performance will hinge on global trade conditions.
“Kiwis have done it tough in this cycle, but the hope is that the worst is already behind us,” Tanuvasa said.
Read the ASB and Westpac insights for more information.
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