NEW ZEALAND: VIEW: Westpac Expects Two Further Cuts In 2025

NZ Q4 GDP was stronger than expected rising 0.7% q/q but still down 1.1% y/y, an improvement from Q3’s -1.6% y/y. There was positive growth in 11 out of 16 sectors with construction continuing to contract though. Westpac notes that technical factors boosted the headline but there was “genuine growth” in the data too. It expects growth to be moderate but below trend in 2025 with the cash rate falling to 3.25%.

• Westpac says that “today’s figures don’t give us reason to adjust our GDP forecast for the March quarter GDP, which currently sits at 0.4%. Our nowcast model, which tracks the general tone of the data in real time, currently sits at around 0.3%.”
• “Given the issues with the volatility of GDP and the extent of revisions, the RBNZ has tended to downplay it in recent times, putting more of its focus on a suite of higher-frequency economic indicators. That said, we don’t think the RBNZ will overlook today’s upside surprise altogether.”
• “At the February Monetary Policy Statement the (now-departed) Governor strongly signalled two further OCR cuts in April and May, but the forecasts were divided on the possibility of a third cut later in the year. At the least, today’s figures make that third OCR cut less likely.”
• Westpac observes that “On a sector-by-sector basis, total activity was up by around 0.3% – better than the flat outcome that was implicit in our forecast. This was mostly due to stronger than expected contributions from a range of service sectors such as healthcare, professional services, and arts and recreation.”
• “Bear in mind that with hours worked down 0.5% over the quarter, seeing any growth in GDP at all would require a healthy lift in productivity.”