New Zealand’s economy shrunk 0.9% in the June quarter as manufacturing activity collapsed during the start of winter and as US President Donald Trump launched his trade war.
Figures released by Stats NZ on Thursday showed gross domestic product (GDP) fell almost a full percentage point in the three months ended June, with declines in most industries.
“The 0.9% fall in economic activity in the June 2025 quarter is broad-based with falls in 10 out of 16 industries. GDP has now fallen in three of the last five quarters,” said Jason Attewell, Stats NZ’s spokesperson for economic growth.
The weak June data completely erases the 0.9% gain made in the first three months of the year and will likely prompt a fresh downgrade of calendar-year economic growth forecasts.
Economists at the Reserve Bank had forecast the economy would contract just 0.3% during the June quarter, while retail banks were predicting closer to 0.5%.
Manufacturing saw the hardest fall. It dropped 3.5% in the quarter, led by transport equipment, machinery, and equipment manufacturing which fell 6.2%.
Food, beverage, and tobacco manufacturing fell 2.2% and was reflected in decreased export volumes of products such as meat. Construction was down 1.8% in the quarter, reversing a 1.2% increase in the three months ended March.
“Construction activity fell across a range of measures in June 2025 quarter, not just GDP. 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%,” Attewell said.
In a note prior to the release, BNZ economists said the manufacturing sector was struggling with rising input costs such as energy, weak consumer demand, and strong competition from offshore producers.
Matthew Galt, an economist at ANZ, said global uncertainty from Trump’s tariff policies, which were first announced in April, seemed to have played a role in the weak quarter.
“That saw firms defer their investment and employment decisions. There have also been headwinds at the household level from high food price inflation, a softening labour market, and a housing market that continues to go sideways,” he wrote before the data release.
Economic activity was down 1.1% on an annual basis and GDP per capita had fallen 2.1%. Overall, the New Zealand economy had contracted 1.4% or roughly $1 billion since the election in 2023.
This compares unfavourably to most other countries. New Zealand’s economy has shrunk 0.6% relative to the same quarter last year, while Australia has grown 1.8%, Canada 1.2%, the European Union 1.6%, and the United Kingdom 1.2%.
However, New Zealand’s real purchasing power rose in the June quarter. This is a measure of how many goods and services residents are able to purchase or consume. Kiwis’ ability to buy goods and services rose 0.9% thanks to lower import prices and higher overseas investment income.
Some economists in the data release lockup noted there was significant noise in the data and didn’t expect it to change the RBNZ’s overall view of the economy.
25 Comments
The screws just tightened for rbnz and coalition govt. The responses will be interesting probably an over-reaction
Silver lining, this will force Willis and coalition to react and provide some fiscal support....
Have faith, she has fixed
- energy prices
- lack of gas
- supermarkets
- fixed house prices (for the over $5mil crowd)
now just the economy to fix <sarc=off>
I really doubt that it will be an overreaction (though it probably is needed)
The normal response here is to cut tax or increase benefits etc to those who spend every last $$$$. Increased depreciation works in a shallow recession, but business has zero confidence to spend on large items here, tractor sales? all these things will push surplus from an impossible 2028 out to 2032 (maybe 2030 with crazy forecasts no one will believe)
I don't see how they can do anything as the shrinking economy is going to hurt tax revenue. Unless they completely forget about their debt levels.
What kind of stimulus would help anyway? A few dollars of tax cut won't do much and will cost a lot of revenue. Maybe a $1000 one off handout to everyone (costing $5 billion)?
They could just undo some of the direct and completely unnecessary policy reversals they implemented too quickly last year. Kainga Ora and the investment in social welfare services - all of which were employing Kiwi's and small local NGO's and business. Restore the pipeline of school and hospital maintenance programs that were providing stable work streams for local tradie's and their apprentices. Ensure jobs for all of our graduate nurses and medical students. Increase funding into the hospital network to support good work conditions and above and beyond patient care.
This will set off alarm bells at the RBNZ. If their next OCR move isn't atleast 0.5% lower, I'll eat my hat.
This number was the June qquarter and Sept qtr has improved (according to some)
Also farmers are coming to the rescue
Nov 25 then Feb 26, quite a long break. I think the trading desks will start to price more than 25.
Housing market could be on its face by Feb 26
2 more reviews this year, 8 October and 26 November. Total 0.5 or 0.75 and possibly 1 percent lower. Mortgage holders will be like Maccas ... Im loving it
Election will cause uncertainty and buyers will hold off in 2026
If Christian Hawkesby wants any chance of keeping the top job he will need to make a 0.5% cut, especially after the decision to pause while the economy was doing so badly. I get the feeling he only realised this at the last OCR review where he seemed to change his tune completely.
If I was Nicola Willis interviewing new candidates, I would ask what they would do in the current situation, then employ the candidate who recommends the biggest cut.
He's done nothing wrong, it's her that should be out of a job.
I am not sure it was all her. Was she the one that decided they needed to cut taxes? That's where the problems started...
Lack of fiscal policy got us into this mess and lack of fiscal policy will keep us here.
Agree. Fiscal vacuum from the current government but that is what we voted for - lower taxes means lower spending. The government is kind of trapped like a deer in the headlights.
Oh, Now that boomers are starting to retire from leadership roles, there is quite a lot for us Gen X and Gen Y to fix up
That's an appalling print. It's damning for both Labour and the Coalition, the latter who are completely bereft of how to stimulate economic activity. They slashed at an economy that was already struggling and rather than any stimulus, embarked on divisive projects such as the treaty principles bill.
There is a whiff of death about NZ at the moment. Hospitality is in decline; people just cannot afford to eat out. Our talent exodus is enormous, and they are being replaced by the largely unskilled. The only bright spark is the primary sector, ironically the same sector Labour had been trying to torch.
Just this week another pulp processing plant closed, making that 4 or 5 now (this was plywood). A logging mill near me closed due to regulation cost. Our energy costs make us uncompetitive in absolutely everything apart from isolated areas of IP.
Luxon and Willis getting rolled is my pick.
To be fair they slashed at public spending costs that had gone through the roof and was on the way to the moon...
And used the savings to fund the removal of residential capital gains tax and reinstate interest deductibility for landlords... Show me the economic thought process behind this.
Don’t have a problem with interest being deductible but dropping the brightline down to 2 years was a mistake. Should have been at least 5 years.
Remind me again by how much has spending dropped?
Those jobs, even if somewhat superfluous, stimulated economic activity through the multiplier effect. To shed 1000's without supply side reform was really, really dumb.
Willis is starting to make me miss Grant and as for Luxon, he is cuckolded by Seymour and Peters.
Looking at the Reserve Bank graph of OCR rates since 1999 shows interest rates are not too high and are not the problem. Other than rural, we have not enough producers of export revenue, we have over 30 years of the education sector specialising in dumbing down of our kids, we have lousy productivity, we think building s..t boxes masquerading as housing is a sign of a vibrant economy. Apart from that spiel I am lost for words.
Agreed. All cutting rates will do is weaken the currency and deliver imported inflation. We need serious supply side reform and we need cheaper energy as we cannot afford net zero.
When the RBNZ raised from 0.25% to 5.5% in such a hurry I was surprised the damage wasn't much worse. It turns out the damage was much longer instead.
This is a story about fiscal policy as well as interest rates. Most of our economic peers have avoided this situation by balancing fiscal and monetary policy to maintain high levels of employment. The coalition have been reckless and the NZ economy is paying the price.
I'm not that convinced. What do you think they should have done different? Surely this isn't due to sacking a few public sector workers?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.