New Zealand’s economy likely eked out of recession in the fourth quarter of 2024, but growth remains sluggish, reinforcing expectations that the Reserve Bank of New Zealand (RBNZ) will continue easing monetary policy to stimulate demand.
GDP is projected to have expanded by 0.4% in the final quarter of the year, slightly ahead of the RBNZ’s 0.3% forecast.
The marginal rebound follows two consecutive quarters of contraction, which saw GDP shrink by 1.0% in the September quarter and 1.1% in the June quarter.
This marked the steepest non-pandemic-related downturn since 1991. Despite the recent uptick, the economy remains fragile, with key sectors still struggling to regain momentum.
Kiwibank economists predict a modest 0.3% growth rate, cautioning that the improvement is “muted” and does not signify a strong recovery.
Weak demand prompts further rate cuts
While the GDP expansion is a positive shift, economic indicators suggest that the broader growth impulse remains weak.
The RBNZ has already slashed the official cash rate by 175 basis points since August 2024, bringing it down to 3.75%.
The central bank has also signaled additional cuts of 25 basis points each in April and May to provide further stimulus.
Market expectations for continued rate cuts are underpinned by persistently weak demand, with several industries still under pressure.
Although tourism-driven sectors, including retail, hospitality, and transport, have shown signs of resilience, other areas, such as manufacturing and construction, are yet to recover meaningfully.
Utilities have seen a moderate rebound, but overall business confidence remains subdued.
Global trade risks threaten recovery
The global economic landscape adds another layer of uncertainty to New Zealand’s recovery.
Analysts highlight the potential impact of US President Donald Trump’s trade policies, particularly tariffs imposed on China.
New Zealand, which exports a significant share of its goods to China, faces potential headwinds if global trade conditions deteriorate.
The South Pacific nation has relied on strong export demand, particularly for dairy and agricultural products, to support growth.
However, heightened trade tensions could disrupt supply chains and dampen export revenues.
Economists warn that prolonged trade disruptions may weaken New Zealand’s external sector and add pressure on the RBNZ to take further accommodative measures.
RBNZ prioritises real-time data
Given the lagging nature of GDP data, the RBNZ has increased its reliance on higher-frequency economic indicators to gauge real-time economic conditions.
While the fourth-quarter GDP figures provide a snapshot of past performance, policymakers are looking at employment, consumer spending, and business investment trends to assess the economy’s trajectory.
Westpac senior economist Michael Gordon emphasised that technical factors in GDP calculations may have contributed to the reported growth, urging analysts to focus on annual trends rather than quarterly fluctuations.
Despite the modest improvement in the fourth quarter, significant slack remains in the economy.
ANZ economists note that New Zealand is still operating with “substantial spare capacity,” allowing room for growth without triggering inflationary pressures.
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