Economists have been quick off the mark to say the Reserve Bank needs to cut the Official Cash Rate by 50 basis points (to 2.5%) next month after the surprising 0.9% slump in GDP for the June quarter announced on Thursday.

Both Westpac NZ and Kiwibank economists swiftly put out commentary saying the RBNZ needs to act quickly and ASB economists followed later in the afternoon.

Kiwibank economists said taken at face value “the significant drop-in activity” in the June quarter “proves, once again, that the RBNZ has not yet delivered the appropriate monetary policy setting”. 

“We have been advocating for a 2.5% cash rate for over 2 years. And now it is crystal clear that current monetary policy settings, with a 3% cash rate, are not enough. We are advocating a 50bp move in October,” the economists said.

“Get it done. Get to 2.5% asap. No more time for mucking around. It’s time for leadership out of the RBNZ,” they said.

Westpac NZ chief economist Kelly Eckhold said: “We now think the RBNZ will cut 50bp in October and 25bp in November (previously we expected 25bp cuts at both of those meetings).”

“The cut in October seems a high probability, November is likely but more uncertain.”

A sub-2.25% OCR by the end of the year?

And ASB economists say they now expect a 50bp OCR cut in October, and a 25bp cut in November to bring about a 2.25% year-end OCR as the RBNZ moves to more actively support the economy.

“The OCR path remains conditional on the economic outlook, and with incoming data pivotal (the QSBO on October 7 for example). If we fail to see signs of recovery in interest-rate sensitive parts of the economy as the year progresses and if pricing side metrics point to cooling inflation, a sub-2.25% OCR is conceivable,” the ASB economists said.

This all comes as head of advocacy and strategy at the Employers and Manufacturers Association (EMA) Alan McDonald says the results are a knock at the wrong time.

McDonald says: “Even though the data reflects the June quarter, and we’re now seeing signs of improvement, it still sends a negative signal to businesses that are already cautious about investing and hiring.”

“We know from our exporters and primary producers that things are picking up, but there’s a two-speed economy. Sectors such as construction and services in the main cities are still struggling, and confidence remains delicate.”

Willis says it’s ‘global uncertainty’

Finance Minister Nicola Willis says the Gross Domestic Product figures for the June quarter reflects the impact of global uncertainty on consumers and businesses.

Willis says the economy had been growing strongly in the previous six months “but suddenly had the stuffing knocked out of it”.

“It is important to remember that this is backwards-looking data.”

“Lower interest rates are filtering through the economy. There is evidence of increased mortgage lending. And the impact of tariffs has not been as disruptive as initially feared. The outlook for most export sectors remains positive,” Willis says.

“All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases.”

Labour finance spokesperson Barbara Edmonds says: “Christopher Luxon stood in front of New Zealanders in 2023 and said his business experience would fix cost of living and the economy. Instead, he has failed dramatically.”

“Christopher Luxon has no plan to turn things around. That is simply not good enough,” Edmonds says.

Additional reporting by David Hargreaves