New Zealand’s economy expanded 0.8% in the first quarter of 2025, missing the 1.0% growth forecast by economists and signaling a slower-than-anticipated recovery. The data, released Wednesday by Statistics New Zealand, showed that while household spending held up, business investment declined and the service sector underperformed.
Service Sector and Investment Weigh on Growth
The services industry, which accounts for roughly two-thirds of New Zealand’s economy, expanded by just 0.5% in the quarter. Retail trade, hospitality, and professional services all reported softer activity. Meanwhile, business investment fell 1.2%, driven by lower spending on plant, machinery, and construction.
Also read: Warsh's Fed begins with a hawkish message and a promise of reform
“The GDP number tells us the recovery is happening, but it’s uneven,” said Reserve Bank of New Zealand chief economist Paul Conway in a statement. “Businesses remain cautious about committing to large capital projects.”
Household Spending Provides a Cushion
Household consumption rose 1.1% in Q1, supported by a tight labor market and modest wage gains. Spending on durable goods, particularly vehicles and electronics, increased as supply chain constraints eased. However, economists caution that this strength may not persist if inflation continues to erode purchasing power.
Also read: Ex-Citigroup executive alleges she was fired after raising concerns about Trump-related accounts
Exports also contributed positively, with dairy and tourism both posting gains. Visitor arrivals from Australia and China have recovered to about 85% of pre-pandemic levels, according to Statistics New Zealand.
Implications for the RBNZ
The GDP miss reduces pressure on the Reserve Bank to raise interest rates at its next meeting in July. The central bank has held the official cash rate at 5.5% since May 2024, balancing persistent inflation against a fragile economy. Annual inflation was 4.0% in the first quarter, still above the RBNZ’s 1–3% target band.
“This data tilts the scales toward a hold rather than a hike,” said Sharon Zollner, chief economist at ANZ Bank New Zealand. “The economy is not overheating; it’s recovering slowly.”
Financial markets reacted mildly to the release. The New Zealand dollar slipped 0.3% against the US dollar, while the benchmark NZX 50 index was little changed.
Outlook for the Rest of 2025
Economists expect growth to pick up in the second half of the year, supported by lower interest rates globally and a rebound in business confidence. However, risks remain, including a potential slowdown in China—New Zealand’s largest export market—and the lingering effects of high domestic inflation.
The government has signaled it will prioritize fiscal discipline in its May budget, with Treasury forecasting GDP growth of 2.1% for the full 2025 calendar year.
Frequently Asked Questions
What was the GDP growth forecast for New Zealand in Q1 2025?
Economists had forecast 1.0% growth, but the actual figure came in at 0.8%.
Which sectors contributed to the weaker-than-expected GDP result?
The service sector grew only modestly, and business investment declined, dragging down overall growth.
How might this GDP miss affect the Reserve Bank of New Zealand’s interest rate decisions?
The weaker growth could reduce pressure on the RBNZ to raise rates further, though inflation remains a key concern.
