NEW ZEALAND: NZ Economy Very Soft But Should Improve

Q2 GDP prints on Thursday and Bloomberg consensus is forecasting a 0.4% q/q contraction, slightly stronger than the RBNZ’s August projection of -0.5% q/q. While PMI data point to growth remaining soft in Q3 2024. The NZIER published its consensus forecasts today, which have been revised down 0.6pp to zero for the year to Q1 2025 before lower rates drive a recovery.

• Consensus expects growth to improve to 2.2%y/y in Q1 2026 and 2.8% in Q1 2027, both revised down 0.2pp. Private consumption and exports were revised lower for 2025 (see NZIER report here).
• Inflation projections were also revised lower with it now at 2.3% y/y down from 2.6% in Q1 2025 and then staying around 2% thereafter. As a result the OCR rate path has been revised lower to 2027.
• PMI data for August showed both services and manufacturing continuing to contract but at a slightly lesser rate. Both of these indicators are included in the RBNZ’s list of high frequency indicators that it is monitoring and continue to signal that growth is weak. There are likely to be rate cuts at the two remaining meetings in October and November.
• The Business NZ performance of services index rose to 46.8 in August from 43.2, highest since March. The improvement was broad-based with new orders, employment and sales all rising but still below 50.
• Friday’s manufacturing PMI also saw increases across components, including employment and new orders, but they remain below 50. 

Business NZ PMIs