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Key results

Quarterly change: -0.2% (last: +0.1%, Westpac f/c: -0.4%, market f/c: -0.4%, RBNZ -0.5%)

Annual change: -0.5% (Last +0.3%, Westpac f/c -0.6%, RBNZ -0.7%)

The New Zealand economy shrank by 0.2% in the June quarter. Estimated growth in the March quarter was trimmed back to a 0.1% rise (previously estimated to be up 0.2%), and there were modest revisions to earlier quarters that largely balanced out.

The 0.2% fall in production GDP was smaller than the 0.4% fall that we and the market were forecasting. Reinforcing that surprise, the less-followed expenditure measure of GDP was unchanged, and the income measure actually rose by 0.2% in real terms.

As we signalled in our preview, the performance across industries was a mixed bag. Retailing, wholesaling and forestry saw the most significant declines. On the positive side, manufacturing saw a strong 1.9% rise, and personal services such as healthcare and recreation held up better than we expected.

As Stats NZ had noted, changes in the timing of tobacco imports have disrupted the pattern of quarterly GDP to some degree, boosting growth in the March quarter and acting as a drag on growth this time.

On the expenditure measure of GDP, there were gains in household spending, government spending and business investment. Goods exports were the main drag on growth, falling back by 4.4% after a strong rise in the March quarter.

Implications

While still soft, these results come as something of a relief. Higher-frequency activity data had taken a marked turn lower in May and especially June, raising concerns that the New Zealand economy’s drawn-out slowdown could be entering a new, much tougher phase. However, not only has the monthly data improved somewhat in July and August, but in GDP terms the June quarter itself turned out to be no worse than what we’ve seen over the last couple of years.

We continue to expect the RBNZ to cut the OCR by 25bps each at the October and November reviews. While financial markets will no doubt fixate on the idea that the US Fed’s decision this morning has opened the door for 50bp rate cuts elsewhere, there isn’t much in the local data that argues for the RBNZ to step up the pace of easing beyond what it had already signalled in its August policy statement.