Well, that was certainly quite a lot of fuss over something that (probably) happened three months ago, wasn’t it?

And now here we are busily talking the Official Cash Rate down to zero (well, I’m exaggerating, I’ve seen 2% now mentioned seriously).

The 0.9% decline in GDP for the June quarter, as revealed by Statistics New Zealand last week raised a whole heap of issues, which, I’ll try to make some sense of here. Balance and perspective are needed.

The Reserve Bank has its next review of the OCR (currently at 3.0%) on Wednesday, October 8. I’ll have much more to say on that directly next week when I preview the decision.

Clearly though, the RBNZ is back in the gun again.

Let me try to assemble some of the facts as best known. The GDP result was a nasty shock because the figure was so much worse than any predictions. The RBNZ had forecast -0.3% while economists were in a -0.3% to -0.5% range.

Do we believe the -0.9% figure? Well, we’ll have to wait and see how accurate it is, won’t we. I instinctively doubt the economic performance in the quarter was as bad as that. And I will not be surprised at all if we see a bounce back by a similar, if not slightly higher amount for the September quarter. Although we won’t sadly see that result till mid-December. (If you were wondering, doubts over the accuracy of the figures are why I used the word ‘probably’ in the first paragraph).

Surely the whole timeliness issue here is a big part of the problem.

Timely and accurate would be good – we don’t have either

If we are going to have to wait ages for data, then we want it to be accurate. But if we look at some of the massive revisions that have taken place to our GDP figures in the past year well, sadly, we know that’s not always the case.

There appears to have been quite a shift in emphasis at the RBNZ since the middle of last year in terms of paying closer attention to more timely ‘high frequency’ data. They are not going to say they don’t ‘trust’ the official data. But their actions may well indicate that. The change in emphasis came after the RBNZ horrifically misread the tealeaves in its May 2024 OCR review and Monetary Policy Statement and actually INCREASED the perceived possibility of another OCR RISE.

But as high frequency data started showing an economy heading off the cliff in June 2024, so, the RBNZ, to give it some credit, rapidly reversed direction in its July OCR review and indicated cuts ahead.

Fast forward to the middle of this year, 2025, and we had a very interesting situation developing. On June 19 Stats NZ announced a 0.8% (subsequently revised up to 0.9%) rise in GDP for the March quarter.

I wasn’t celebrating. On June 16 – three days before we found out officially what happened in the March quarter – I wrote up the latest BNZ – BusinessNZ Performance of Services Index (PSI) for May, which showed a massive drop in activity. The services sector makes up about two thirds of GDP. In addition, the BNZ – BusinessNZ Performance of Manufacturing Index (PMI) for May that had been released on June 13 also came down with a bump. 

So, in other words, we didn’t officially know yet what had happened in the March quarter – but we had some reasonably clear indications the economy was tanking again in the June quarter. And those indications were proven correct.

How about a monthly economic snapshot?

Would it have helped to have ‘officially’ known earlier of the June quarter slump? Well, yes.

The RBNZ relies on accurate, timely, information on the economy on which to base its monetary policy stance.

In this year’s Government Budget, funding approval was given for Stats NZ to begin a monthly Consumers Price Index (it’s quarterly now) – but not till 2027. Never mind, it will help.

However, we definitely also need some sort of monthly economic snapshot. Now, it could be argued that a monthly series might throw up rogue results. But is that any worse than our current situation where we wait three months for the data and then can’t be confident it’s accurate anyway? I think not.

In the meantime, we must do our best with the information in front of us. As must the RBNZ.

Given that the official version of GDP for the September quarter won’t be with us till December 18, what is the ‘high frequency’ data suggesting thus far about how this quarter is travelling?

Well, better. That’s what we need to bear in mind ahead of the RBNZ’s last two OCR decisions for this year.

Things are looking up

Without going into chapter and verse, I can say that retail spending figures are now moving up (although, goodness, they needed to), employment stats are starting to look firmer, as are job ad stats. Our exports – led by the primary sector – are going well. The only real negative I’ve seen so far, and it is significant, is that activity in both services and manufacturing slipped again in August after reasonable bounces in July. 

If that hadn’t happened, I would be feeling rather more confident about the GDP outcome for the September quarter – but I am going to stick with my view that there will be a reasonable lift. Things will get better. I think the RBNZ definitely overdid the extent of OCR hikes between 2021 and 2023 and that’s why the recovery’s taking time.

But, anyway, without going into detail of what the RBNZ might do with the OCR on October 8 – because I’ll do that next week – what is now needed and what will help?

The RBNZ indicated after the August OCR decision that only around half of the 250 basis points worth of OCR cuts since August 2024 had so far fed through into the economy. That’s right, about another 125 still to be ‘felt[ and that’s before we add in any more cuts that might be made subsequently.

Amid the clamour for an ever-lower OCR, we need to bear in mind such facts. How much more cutting can help in one go and when do we start risking over-cooking the cuts, such that the economy (for ‘economy’ read ‘property market’) starts to heat up. And yes, as I’ve said before, we are miles from that situation at the moment, but these things can turn real quick. We’ve been there and done that.

Over to you, RBNZ

It’s up to the RBNZ to decide how much more cutting is really needed given that the economy is ‘seemingly’ picking up again.

What would be really, truly, helpful is if we can avoid getting these nasty shocks. For that we’ve simply got to find a way of measuring our economy more often, in a more timely fashion. And as accurately as possible. 

Good economic data is not a nice-to-have, it’s an essential – if we want to keep our economy on an even keel.

We can’t have the RBNZ resorting to what looks suspiciously like educated guesswork when it’s setting our interest rates.

We deserve better. We need better.

Here’s to no more ‘June swoon’ shocks. We can’t stop bad economic news. We can just be better prepared for it – and be able to react to it faster. Â