‘A knock at the wrong time’: Economic activity dived 0.9% in June quarter

Thursday, 18 September 2025

The economy shrank much further in three months than the Reserve Bank expected, and underperformed even the most pessimistic forecasts of bank economists.

Stats NZ reported this morning that GDP fell 0.9% in the June quarter. Westpac senior economist Michael Gordon described the GDP figures as “substantially worse than expected”.

Kiwibank said the economy “didn’t just stall over the June quarter; it slammed into reverse”.

The figures may support the Reserve Bank’s assumption that two more interest-rate cuts, which would take the official cash rate (OCR) down to 2.5%, could be in the pipeline.

But Westpac is now forecasting a 50 basis-point cut when the central bank reviews the OCR next month, and another 25bp cut in November. Capital Economics senior economist Abhijit Surya also said the “plunge in activity” had put a 50bp cut next month in play.

Ahead of the announcement, the Reserve Bank had been estimating a 0.3% decline, while forecasters from the major trading banks last week revised up their predictions to a drop of between 0.3% and 0.5% because of weak manufacturing and construction data.

In the context of quarterly movements in GDP, a 0.9% drop represents a quite steep decline.

Employers and Manufacturers’ Association strategy head Alan McDonald said sentiment had since turned more positive but the GDP release was “a knock at the wrong time”.

“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,” he said.

“Let’s get moving on the school and hospital upgrades announced in the May Budget. Targeting areas like South Auckland, where growth is slower, would help restore confidence and create momentum,” he said.

GDP figures are inflation-adjusted.

Stats NZ’s general manager of macroeconomic statistics, Jason Attewell, confirmed they meant the economy had declined 1.4% since the fourth quarter of 2023, which was the period during which the Coalition Government took office.

That represented an inflation-adjusted drop in activity of just over $1 billion in the June quarter, from the final three-month period in 2023.

The New Zealand dollar fell about a quarter of a US cent following the announcement, suggesting a heightened expectation of looser monetary policy.

Westpac’s Gordon said seasonal variations that Westpac believed Stats NZ had not fully accounted for would have contributed to the size of the drop and there could be an offsetting bounce next quarter.

In March, Finance Minister Nicola Willis told Parliament and the media the country was in the middle of an export-led recovery.

She said the today the GDP figures reflected the impact global uncertainty had on consumers and businesses, and it was important to remember the figures were “backward-looking”.

“The second quarter of the year started the day before United States tariffs were announced. The economy had been growing strongly in the previous six months, but suddenly had the stuffing knocked out of it. I feel for people and businesses who have been affected,” she said.

“Lower interest rates are filtering through the economy. And the impact of tariffs has not been as disruptive as initially feared. All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases.”

BNZ research head Stephen Toplis agreed US President Trump’s “Liberation Day” announcement on April 2 would have had a negative impact, but said the quarter had always been looking weak.

“There was more going wrong with the economy than that, not the least of which is the fact that we know that there was no real disposable income growth throughout the economy.”

There have been mixed signals on whether and to what extent the economy may have improved since June.

Economic activity in the services sector — which accounts for about two-thirds of the economy — continued to decline in the month of August, according to a survey published by BusinessNZ last week.

But ANZ senior economist Matthew Galt said then that there had been some improvement in forward-looking indicators of economic activity that suggested the economy was returning to growth in the current quarter and could spare the country from another technical recession.

Stats NZ reported that manufacturing activity dropped 3.5% in the June quarter, while activity in the construction industry fell 1.8% and the services sector was “flat”.

Attewell described the decline in GDP as “broad-based”, with declines in 10 of the 16 sectors Stats NZ monitors.

Economic activity had now fallen in three of the past five quarters, he also noted.

“Construction activity fell across a range of measures in the June 2025 quarter, not just GDP,” he said. “The value of building work put in place, a key input to GDP, fell 2.2%, and filled jobs in the construction industry fell 1.3%.”