Negative GDP and rate cuts expected
The world of finance is bracing for an eventful week, with central banks at the forefront of global economic developments.
From key data releases to significant central bank policy decisions, “Super Thursday”, as dubbed by Kiwibank economists Mary Jo Vergara, Jarrod Kerr, and Sabrina Delgado (pictured left to right), promises to deliver a whirlwind of updates that will have ripple effects across financial markets.
With the US Federal Reserve expected to kick off its much-anticipated rate-cutting cycle, along with major announcements from the Bank of England (BoE) and the Bank of Japan (BoJ), economists and investors alike are preparing for a jam-packed week of developments which will inevitably impact the New Zealand economy.
The Federal Reserve: A crucial move
The Federal Reserve is expected to make a crucial move this Thursday, kicking off its first rate cut in four years.
As the US central bank prepares to begin its easing cycle, market watchers are left speculating whether the first cut will be 25 basis points (bps) or a more aggressive 50bps.
While a 25bps cut is considered the safer bet, market signals suggest that a 50bps cut isn’t entirely off the table, according to the group of Kiwibank economists.
“Whether it’s 25 or 50, of greater interest will be the Fed’s updated dot plot. The June projections reduced the amount of expected easing to 25bps from 75bps,” the Kiwibank economists said.
“But the 2025 outlook was bolstered to 100bps of easing from 75bps. With another two meetings remaining, we’d expect the new dot plot to signal at least 75bps of total cuts this year.”
Domestic developments: New Zealand's GDP woes to continue
Back in New Zealand, the June quarter GDP report, which is also published on Thursday, will provide critical insights into the state of the economy.
According to Kiwibank economists, the country is likely to experience another contraction, following a trend of economic shrinkage that began in 2022.
The team said the latest downturn is expected to reveal a 0.4% decline in activity for the quarter marking another chapter in New Zealand’s prolonged economic slump.
Other banks are expecting similar results.
Westpac NZ said Thursday’s GDP report is likely to show a continuation of the New Zealand economy’s “rolling maul” recession, where one quarter of flat or slightly negative growth has merged seamlessly into another.
“Following the insipid (though better than expected) 0.2% rise in GDP in the March quarter, we expect to see a 0.4% fall for the June quarter,” the bank said in its commentary revising its forecast of -0.6%.
ANZ NZ expects the NZ economy to contract by -0.1% quarter-on-quarter and -0.3 year-on-year.
Still, the banks’ expectations are above the Reserve Bank of New Zealand (RBNZ) forecast, which expects a -0.5%qoq drop (-0.7yoy).
Forget double dip: Triple trough takes the stage
New Zealand’s economic woes have been well-documented over the past two years. The country entered what economists dubbed a "double-dip recession" in 2023, and it now appears to be on the verge of a "triple trough recession."
Since the summer of 2022-2023, New Zealand has experienced a cumulative economic decline of 0.8%, followed by a further 0.4% contraction in late 2023. The June quarter's expected 0.4% dip would mean the economy has contracted in five out of the last seven quarters, leaving it 0.7% smaller than it was a year ago, according to the Kiwibank team.
Despite these challenges, the outlook is brighter, with the Reserve Bank of New Zealand (RBNZ) expected to continue its own rate-cutting cycle soon.
Economists forecast that 2025 could be a better year for the Kiwi economy, providing much-needed relief for households and businesses that have endured two years of unrelenting recession.
The UK and Japan: Contrasting central bank policies
The financial drama extends beyond the US and New Zealand.
Across the Atlantic, the Bank of England (BoE) and the Bank of Japan (BoJ) are also slated to announce their latest monetary policy decisions.
The BoE, which implemented a 25bps rate cut last month, is expected to hold steady this time around. With inflation still lingering and services inflation proving particularly sticky, the BoE is taking a cautious approach.
UK inflation data, due just ahead of the BoE’s decision, will play a key role in determining the central bank’s next steps. Market consensus points to inflation holding steady at 2.2% year-over-year for August, although there’s a risk that services inflation could accelerate further.
In Japan, the BoJ is also expected to maintain its current policy, but the possibility of future rate hikes looms large.
Wages in Japan have been rising, and inflation is on the upswing. Core inflation is projected to increase from 2.7% in July to 2.8% in August. As wages grow and services prices climb, the BoJ may look to raise rates later this year, with a potential hike as early as October.
One for the books
Whether it’s the Fed’s first rate cut, the BoE’s cautious approach, or New Zealand’s ongoing economic struggles, this week promises to be one for the books. Strap in, because Super Thursday is just the beginning.
