After plunging in the previous two quarters, GDP grew a better-than expected 0.7% in the December quarter; figures 'a genuine upside surprise'

We are out of recession - and with a quarterly GDP rise that has surpassed all expectations.

Statistics NZ reports that GDP grew 0.7% in December. That's more than double the growth the Reserve Bank expected (0.3%), and is more than major bank economists expected.

Westpac senior economist Michael Gordon said the result "was ahead of our forecast of +0.5%, which in turn was at the higher end of the range of market forecasts (median +0.4%)".

"We’d call this a genuine upside surprise, in the sense that the growth was driven more by real activity and less by the seasonal issues that we identified in our preview." 

He said sector-by-sector growth added up to around 0.3%, with better-than-expected contributions from a range of service sectors including healthcare, professional services, and art and recreation. 

"On an annual basis, GDP was down 1.1% on the same time a year ago. Again, that was better than the -1.3% that we expected, and was an improvement on the -1.6% in the September quarter," Gordon said. 

The move into positive growth for the economy in the December quarter follows a short, but very sharp, recession in the middle of last year that saw GDP sink 1.1% in the June quarter and a revised 1.1% in the September quarter (previously reported as a drop of 1.0%).

The big downturn in the economy came after the Reserve Bank (RBNZ) had hiked the Official Cash Rate (OCR) up all the way from just 0.25% to 5.5% in order to stamp out a wave of price hikes that saw inflation surge to 7.3% by mid-2022.

Inflation's now back within the targeted 1% to 3% range, at 2.2%. But unemployment's rising, having hit 5.1%, after at one point being as low as just 3.2%.

The RBNZ's now pushing the OCR down, having dropped it in a series of cuts since August 2024 to the current 3.75%, with two more 25 point cuts widely expected at the OCR reviews next month and in May. 

And the lower interest rates are clearly beginning to have the anticipated stimulatory effect.

Stats NZ said 11 of the 16 industries increased this quarter. The largest rises were from rental, hiring, and real estate services; retail trade and accommodation; and healthcare and social assistance.

"Higher spending by international visitors led to increased activity in tourism-related industries such as accommodation, restaurants and bars, transport, and vehicle hiring," Stats NZ economic growth spokesperson Katrina Dewbery said.

The largest falls were in construction, and information media and telecommunications.

Construction fell 3.1% in the December 2024 quarter, and has been declining since the March 2024 quarter.

"The fall in information media and telecommunications was driven by decreases in telecommunications and internet services, and broadcasting and internet publishing services," Dewbery said.

GDP per capita rose 0.4% during the December 2024 quarter, its first rise in two years.

The expenditure measure of GDP rose 0.8% during the December 2024 quarter, following a 0.9% fall in the September 2024 quarter.

Household consumption expenditure rose 0.1% this quarter, with increased spending on durable items such as audio-visual and telecommunication equipment.