Economy grows 0.2 percent in June quarter, 2.6 percent on year ago Data is in line with expectations Previous quarter revised up marginally to 0.9 percent growth Construction, manufacturing, wholesaling lead growth Consumer spending, transport activity weaker Financial markets narrowly picking Reserve Bank will raise cash rate to 3.0 pct next month
The economy has escaped significant damage from the Middle East war and spike in fuel prices with a modest rise in growth driven by stronger house building.
Stats NZ data showed gross domestic product (GDP) – the broad measure of economic growth – rose 0.2 percent in the three months ended June, to be 2.6 percent higher than a year ago. On an annual average basis the economy grew 1.7 percent over the year.
It had been expected New Zealand would dodge significant economic damage from the US-Iran war, caused by the fuel-price shock and disruption that dominated the quarter.
Stats NZ spokesperson Jason Attewell said the growth rate was a mixed bag.
“The 0.2 percent growth in economic activity … reflects mixed results, with increases in nine of 16 industries.”
Initial fears were the major spikes in petrol and diesel prices would all but wipe out the solid start to the year, sending consumers and businesses scurrying to cut costs and severely dampening activity.
BNZ senior economist Doug Steel said there has been a stronger than expected economic pulse.
Escaping an economic bullet
The quarter’s growth was the fourth in a row, and annual growth rates were the highest in more than two years.
The surge in house building drove construction up 2.7 percent, while government services grew 2 percent, with wholesale trade especially for machinery and equipment rising 1.3 percent.
The weakest sectors were those strongly exposed to fuel prices.
Road transport and support services fell 1.7 percent, while retail trade such as hospitality and accommodation 1 percent.
Stats NZ said falls in fuel retail volumes pointed to the impact of higher fuel prices.
“Accommodation and food services fell 3.8 percent … indicating a potential change in discretionary spending.”
It also noted that household spending in restaurants and hotels also fell.
Services make up close to three quarters of the economy, but grew only 0.2 percent for the quarter, while goods producing sectors were up 1.3 percent overall.
Transport industries were also weaker coinciding with significant price increases for diesel.
Individual shares of the economy – per capita GDP – rose 0.1 percent for the quarter.
The country’s purchasing power (disposable income) fell 0.4 percent for the quarter, to be 2.5 percent ahead of a year ago.
‘People still got out’
Infometrics economist Brad Olson said the country was getting better at absorbing economic shocks.
Brad Olsen.
LDR
“I think when we first looked at the Iran war and the conflict in the Middle East, Earlier this year, we saw those big increases in fuel prices. We really did expect not only for those higher prices to drive a lot of people to do less activity, but also for everyone to sit on their hands a whole lot more because of the uncertainty.
“And although there was definitely a bit of a pullback in that momentum, people still got out – and did quite a bit.”
The most surprising he said was perhaps construction, which despite rising costs had “momentum” behind it with the growing number of consents being issued.
“At the same time, the other parts of the economy that you might expect would face a bit more of a pullback, did. The likes of accommodation and food services, so hospitality and parts of the tourism sector not going quite as well because – of course – for a lot of Kiwi households, they were having to pay more for fuel. They then didn’t want to travel around as much because they’d already spent their money on paying for the fuel and everyone went back into their shells a bit more.”
He said it wasn’t clear yet which way the Reserve Bank might go at its next review of the official cash rate.
“The biggest worry at the moment, right, is these GDP figures we’re talking about, they’re three months old. Whereas at the moment, you’ve got these pretty high levels of prices coming through for global oil, still above US$100 a barrel. It’s those pressures the Reserve Bank will probably be focused on more in making their assessment.”
Derailed recovery?
Economists are expecting growth to continue unevenly through to the end of the year, and gather more momentum next year, with global events remaining a significant influence.
Business and consumer confidence have improved but still remain pessimistic with uncertainty driving caution, but with growth still occurring.
Forecasts are now picking modest growth going into 2027.
The Reserve Bank last month raised the official cash rate (OCR) at 2.75 percent and signalled rates will rise further to combat 4 percent inflation, although it has said it is also balancing the need to support the economic recovery.
New Zealand’s quarterly growth rate was the weakest among key trading partners including the US, UK, EU, and Japan, and Australia.