Both Westpac and Kiwibank economists have quickly called for the Reserve Bank to cut the Official Cash Rate by 50 points next month in reaction to the 0.9% drop in GDP

Economists have been quick off the mark to say the Reserve Bank needs to cut the Official Cash Rate by 50 basis points (to 2.5%) next month after the surprising 0.9% slump in GDP for the June quarter announced on Thursday.

Both Westpac NZ and Kiwibank economists think the RBNZ needs to act quickly.

Kiwibank economists said taken at face value "the significant drop-in activity" in the June quarter "proves, once again, that the RBNZ has not yet delivered the appropriate monetary policy setting". 

"We have been advocating for a 2.5% cash rate for over 2 years. And now it is crystal clear that current monetary policy settings, with a 3% cash rate, are not enough. We are advocating a 50bp move in October," the economists said.

"Get it done. Get to 2.5% asap. No more time for mucking around. It’s time for leadership out of the RBNZ," they said.

Westpac NZ chief economist Kelly Eckhold said: "We now think the RBNZ will cut 50bp in October and 25bp in November (previously we expected 25bp cuts at both of those meetings)."

"The cut in October seems a high probability, November is likely but more uncertain."

This comes as head of advocacy and strategy at the Employers and Manufacturers Association (EMA) Alan McDonald says the results are a knock at the wrong time.

McDonald says: "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."

“We know from our exporters and primary producers that things are picking up, but there’s a two-speed economy. Sectors such as construction and services in the main cities are still struggling, and confidence remains delicate."

‘The data at present is noisy’

Meanwhile ASB economics Wesley Tanuvasa says overall GDP outcomes were weaker than assumed.

Tanuvasa says the data are noisy at present and “the reasons for the magnitude of weakness are subject to relegation in future releases of GDP”.

“There’s a lot of noise in today’s data and it is backwards looking. Monetary policy needs to look beyond.”

Tanuvasa says there looks to be a need for the Reserve Bank (RBNZ) to “intervene with accommodative policy to spur economic growth”.

Tanuvasa says it retains its view of a further 50 basis points of cuts that brings the OCR to 2.5%. "However, the economic environment is fickle, so too are our views on the OCR."

Willis says it's 'global uncertainty'

Finance Minister Nicola Willis says the Gross Domestic Product figures for the June quarter reflects the impact of global uncertainty on consumers and businesses.

Willis says the economy had been growing strongly in the previous six months “but suddenly had the stuffing knocked out of it”.

“It is important to remember that this is backwards-looking data.”

“Lower interest rates are filtering through the economy. There is evidence of increased mortgage lending. And the impact of tariffs has not been as disruptive as initially feared. The outlook for most export sectors remains positive,” Willis says.

“All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases.”

Labour finance spokesperson Barbara Edmonds says: “Christopher Luxon stood in front of New Zealanders in 2023 and said his business experience would fix cost of living and the economy. Instead, he has failed dramatically."

“Christopher Luxon has no plan to turn things around. That is simply not good enough,” Edmonds says.

Additional reporting by David Hargreaves