New Zealand GDP set to decline 0.4% in September Quarter: Westpac
Westpac predicts a 0.4% decline in New Zealand’s GDP for the September quarter, a downward revision from the earlier estimate of -0.2%.
The forecast reflects weaker-than-expected performance across several key sectors, as revealed by recent sectoral data.
Westpac senior economist Michael Gordon (pictured above) noted the added uncertainty surrounding this GDP release, particularly as Stats NZ prepares to introduce substantial revisions to historical growth rates.
“Depending on how those revisions are allocated across the quarters, they could end up telling a meaningfully different story about the economy’s recent momentum,” Gordon said.
Key drivers of the September GDP decline
The expected GDP decline for Q3 stems from broad-based softness across multiple sectors, along with some corrections following stronger-than-expected performance in the June quarter.
- Manufacturing: Non-food manufacturing is forecast to fall 4%, reversing an anomalous 4% rise last quarter.
- Construction and professional services: Both sectors are expected to show large declines, aligning with ongoing job losses reported through the monthly employment indicator.
- Wholesaling and retail: Wholesaling, a bellwether for economic activity, is forecast to fall 2%. Retail trade showed stabilization, but hospitality remained weak.
- Electricity: Limited gas supply and low hydro lake levels pushed up prices and reduced demand.
On the positive side, agriculture and forestry are expected to lift growth, with strong milk production and a rebound in log harvesting following a June quarter slowdown.
Gordon also pointed to public sector spending as a growth driver, although exact attribution could shift between government services and healthcare.
Upcoming data revisions to reshape the narrative
According to Westpac, which recently unveiled its GDP nowcasting model, this week’s GDP release will include significant revisions as part of Stats NZ’s annual benchmarking process.
Gordon expects revisions to add around 2% to economic growth over the last two years, largely reflecting stronger-than-previously-recognized population growth from migration.
“The revised figures tell a more plausible story about the economy’s recent performance – the declines in per capita GDP and labour productivity, while still large, have not been as severe as previously thought,” he said.
These revisions could also influence how economists and the Reserve Bank (RBNZ) interpret the economy’s current state. Importantly, while annual growth figures will increase, the quarterly pattern of growth rates might change, potentially altering conclusions about technical recessions.
Cautious optimism for 2025
Despite the weak Q3 outlook, Gordon pointed to modest signs of improvement for the December quarter.
High-frequency data indicates a return to growth, though still trailing population increases. Lower interest rates are sparking renewed business and household optimism, but the full economic impact is unlikely to materialize until the second half of 2025.
“Whatever we get out of Thursday’s figures, there is growing evidence to suggest that we’re now past the worst of it,” Gordon said.
In summary, while Q3 GDP is set to show contraction, upcoming data revisions and improving sentiment suggest New Zealand’s economy is slowly turning a corner, with stronger growth anticipated in the months ahead, Westpac reported.
Read Westpac’s economic bulletin here for more insights.
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