Most bank economists predict the economy contracted in the second quarter. Three out of five anticipate a sharper decline than the Reserve Bank’s forecast of a 0.3% quarter-on-quarter decrease.
While the official second-quarter data is set for release on Thursday morning, signs of a slowdown were already clear after several months of weaker-than-anticipated manufacturing, wholesale trade, and services figures.
No one predicted anything close to the strong 0.8% quarter-on-quarter increase in gross domestic product (GDP) recorded in the three months ending in March, although annual growth remained 1.1% lower than the previous year.
Early in the second quarter, negative economic news weighed heavily, as low consumer and business confidence led to weaker performance in both manufacturing and the service sectors.
BNZ Bank anticipated a 0.5% quarter-on-quarter decline in second-quarter GDP, exceeding the Reserve Bank’s forecast.
“Our estimate for Q2 GDP has been lowered to -0.5% q/q (from -0.2%) after crunching through today’s mass of manufacturing, wholesale trade, and services data,” BNZ senior economist Doug Steel said.
Westpac and ANZ Bank predicted a 0.4% quarter-on-quarter contraction, mainly due to seasonal distortions, although the underlying trends seemed stronger than the headline figures indicated.
Kiwibank and ASB projected a slightly less severe contraction, aligning with the Reserve Bank’s forecast of a 0.3% quarter-on-quarter decline.
“The slowdown is expected to be driven by softness in manufacturing and business services – sectors that had an initial tailwind to start 2025,” ASB said.
“Sectors that have been fragile during this cycle, such as construction, are expected to remain soft.”
Kiwibank described the second-quarter forecast as frustrating, given the previous two quarters saw declines of 0.5% quarter-on-quarter in December and 0.8% in March.
“On an annual basis, activity has been flat, meaning the economy is no larger or smaller than it was a year ago,” Kiwibank said.
“We haven’t climbed out of the hole. In effect, activity has simply stabilised despite the significant rate cuts we’ve seen to date.
Kiwibank said that the economy requires stimulus and that the RBNZ’s 50-basis-point OCR cut to 2.5% will improve the economic outlook.
“While our central projection for the OCR is to fall to around 2.50% by the end of the year, that could occur faster or slower depending on how the economic recovery evolves,” RBNZ governor Christian Hawkesby said.
He said the upcoming data on the pace of New Zealand’s economic recovery will be the key factor shaping the future direction of the OCR.