The 0.9% drop in GDP may not have happened, but the lack of growth is evident

Friday, 19 September 2025

Tom Pullar-Strecker is a senior business and economics writer for The Post.

OPINION: It’s anyone’s guess whether it will be the Government or the Opposition that is able to shape the best economic narrative going into the next year’s election.

But it would be brave to bet against a 0 - 0 draw.

The Government’s economic story looks to be unravelling in the wake of the steep 0.9% drop in activity that Stats NZ reported in the June quarter.

It has overseen a decline in inflation and interest rates, which were key voter concerns, even if the degree to which it contributed is debatable.

And it has liberalised a raft of employment and planning laws and regulations in an attempt to unleash the “animal instincts” of businesses in which Auckland Business Chamber boss Simon Bridges has put great faith.

But so far to no great effect.

The instinct of most animals is to run away or keep their head down in the face of uncertainty or danger.

And that’s the behaviour we have most commonly seen on display from the private sector this parliamentary term, as businesses hunker down, all the while telling pollsters they expect conditions to be better in 12 months’ time.

Meanwhile, Labour has yet to put pen to paper on its economic narrative as it struggles to craft a plot on tax reform, sends mixed signals on whether it thinks the country could or should take on much more debt, and waits its turn for a stint at the reins.

Asked on Friday what he would say to give people inspiration Labour had a plan that was going to put the economy on a different track, leader Chris Hipkins said: “We’ll set all that out in due course”.

Perhaps the first thing to note about the 0.9% drop in June-quarter GDP reported by Stats NZ on Thursday is that the number could be quite wrong.

Stats NZ frequently tweaks GDP estimates after the fact, sometimes in a major way as it did last year when it decided the drop in GDP in the three months to June 2024 was 0.9% — not 0.2% as it had originally reported.

This is not an exact science and economists note there are some reasons to be especially cautious about the latest GDP number.

One is that the “seasonal adjustments” Stats NZ makes to the data have been a bit suss in the wake of Covid.

Westpac senior economist Michael Gordon estimates unaccounted-for variations contributed as much as 0.6 of a percentage point to the June-quarter decline, which would reduce the true seasonally-adjusted drop in GDP to 0.3%.

Toplis says there’s a “balancing item” sitting at -0.4% in Stats NZ’s latest update that will need to be unwound because it needs to sum to “zero” over 12 months.

“So in some quarter in the future, probably the fourth quarter, we're going to get a ‘+0.4%’.”

If in doubt, apply the intuition test.

“If you took the numbers literally and measured them like the US does, it says we went from 4% annualised growth in the first quarter to a 4% annualised contraction in the second,” Toplis says.

“No, we didn't,” he asserts.

But there is no changing the broader picture which — as Toplis succinctly puts it — is that “the first half of this year was rubbish in total and it followed on from a 2024 that was largely rubbish”.

Taking a longer view, Stats NZ’s current measure puts economic activity down 1.4% on the quarter when the Coalition Government took power in 2023.

There is a good chance that figure will be back in positive territory by the next election, but only before adjusting for the growth in the country’s population over the period.

Time may have run out to get GDP-per-capita over the term of Coalition Government into the black, as that would require additional growth of 2% to 3% over and above the unadjusted drop in GDP — probably really about 1% — that has so far accrued.

Which is a roundabout way of saying people probably won’t or shouldn’t be feeling better off on average by the time the next election rolls around, than when the term started.