New Zealand: GDP contraction in 2Q25 reinforces further RBNZ rate cut expectations - UOB Group

New Zealand's GDP contracted by 0.9% q/q in 2Q25, following an upwardly-revised 0.9% q/q lift in 1Q25 (+0.8% q/q previously). The latest reading missed consensus estimates for a reading of -0.3% q/q, and had also come in much weaker than the Reserve Bank of New Zealand (RBNZ)'s projection for a 0.3% q/q decrease. Notably, GDP has posted sequential q/q contractions in 3 of the last 5 quarters.

GDP data validates the RBNZ's dovish pivot in August

"New Zealand's economy shrank more than expected in the second quarter. GDP declined by 0.9% q/q, weaker than expectations for a 0.3% drop, and largely reversing course from a 0.9% increase in 1Q25. Compared to a year ago, GDP shrank 0.6% y/y, missing expectations that growth would remain unchanged."

"A soft jobs market, alongside dwindling immigration and cost of living pressures have seen consumer spending taking a hit. Businesses have also been constrained by global uncertainty. We project GDP to rise to 1.1% in 2025 (2024: -0.4%) and 2.3% in 2026, supported by lower interest rates. However, increased trade restrictions and high uncertainty about trade policy globally will temper external demand, confidence, and the pace of the recovery."

"Today's GDP data validates the RBNZ's dovish pivot in Aug. Given the weakness in the economy, and the RBNZ's shift to a more dovish stance, we are maintaining our view of the RBNZ taking rates further below neutral. Our current base case is for two more 25 bps rate cuts in the OCR to 2.50% by 1Q26."