GDP contracted by 0.1% in the December quarter, slightly softer than Westpac and RBNZ estimates.
Key results
- Quarterly change: -0.1% (last: -0.3%, Westpac f/c: 0.0%, market f/c: 0.1%, RBNZ 0.0%)
- Annual change: -0.3% (Last -0.6%, Westpac f/c 0.0%, RBNZ 0.0%)
- Annual average change: +0.6% (Last: +1.3%)
The New Zealand economy was broadly flat over the December quarter. The production measure of GDP fell by 0.1%, slightly weaker than the zero growth that we and the Reserve Bank were expecting. Both the expenditure and income measures (the latter being a new addition to today’s release) were flat in inflation-adjusted terms.
Along with some modest revisions to growth in previous quarters – mostly due to recalculating the seasonal factors – output has shrunk by 0.3% over the last year. Again, this was softer than the flat outturn that we and the Reserve Bank had forecast.
The mix of activity was similar to what we expected. Goods-based sectors are tending to do it tougher, with declines in retail, wholesaling, manufacturing and residential construction. This was partly offset by gains in the services sectors, though even here the growth was patchy. Finance, rental services and professional services saw solid gains, but transport and arts and recreational services were down as the recovery in international tourism faltered over the quarter. The biggest lift was in public administration (up 2.8%), though it’s likely that at least some of this related to the October election.
In the context of the very strong population growth that New Zealand is currently seeing, a flat outturn for GDP is quite a soft result. Output was down 0.7% in per capita terms for the December quarter, and has fallen by 3.1% compared to a year ago. That’s a sharp decline compared to history – something that would normally be associated with recession – but in this case it highlights the degree to which the economy had become overheated in the first place.
On balance, today’s report suggests slightly less need to keep monetary policy tight for an extended period. That said, the scale of the surprise for the RBNZ is less than we saw in the September 2023 release, which the RBNZ has tended to downplay. There is also a lot of water still to go under the bridge before the May Monetary Policy Statement, including the next QSBO business survey (early April), the March quarter CPI (mid-April) and the March quarter labour market surveys (early May). There’s also the crucial first Budget for the new coalition Government – while that will be unveiled after the MPS, the RBNZ will no doubt be briefed on the key details.
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