'Do we really think we are currently growing at the same pace as China and three times that of Australia?': BNZ's head of research says latest GDP result delivered 'more noise than signal', encourages scepticism

We should be sceptical about the latest Gross Domestic Product (GDP) figure, BNZ's head of research Stephen Toplis says, as "GDP outturn delivered what it promised, namely more noise than signal".

On Tuesday, Statistics New Zealand announced that the GDP in the September quarter was 1.1% which outstripped the gains forecasted by the market and the Reserve Bank's (RBNZ) economic modelling 'Nowcast' forecast of 0.9%. 

Toplis said over the last five quarters - starting with 2024's third quarter, "the economy has allegedly plummeted 1.3%, stalled at 0.1%, soared 1.1%, crashed 1.0% and soared again in Q3 2025 this time by 1.1%". 

"Does anyone feel this is a true reflection of what happened to them? And do we really think we are currently growing at the same pace as China (1.1% for Q3) and three times that of Australia (0.4% for the quarter)?"

Annual movement in activity

Toplis said the best way to make sense out of what is happening is to look at the annual movement in activity.

"According to this quarter's data, activity was 1.3% higher than this time last year. It was the first annual increase reported since Q2 2024 and suggests we are, at least emerging from a protracted recession. It also feels about right."

'Early days'

Toplis said there were clear indications falling interest rates were having an impact. 

"Consumer spending on durable goods was up .7.3% on year earlier levels.

"And residential building while still down 0.7% on last year, will, by Q4, be solidly positive, ending a three year run of negatives," he said. 

"The impact of interest rates also shows up in the production data with rental, hiring and real estate services up 1.7% on year earlier levels largely as a function of rising turnover in the housing market."

Toplis said it's only early days in terms of the positive impact that comes from the interest rate stimulus. 

"This gives us some confidence that the annual GDP increase will forge significantly higher over the next twelve months."

'Some way to go'

Toplis said indicators such as the performance of manufacturing index (PMI) and performance of services index (PSI) were still weaker than the BNZ economists would expect if economic momentum is to pick up. 

Anecdotal feedback, Toplis said, from the broader retail sector about Christmas spending is "far from ebullient". 

"The labour market too is still struggling, and dairy prices are in freefall. To cap things off mortgage rates have started to edge higher."

How does this impact the Official Cash Rate?

In November, the Reserve Bank (RBNZ) cut the Official Cash Rate (OCR) to 2.25% from 2.50%.

At the time, the RBNZ said future moves would depend on how the outlook for medium-term inflation and the economy evolve - but it didn’t specifically say the next move would be down.

On Thursday, Toplis said "it is clear there is some way to go before we are out of the woods. It is for this reason that we continue to believe the RBNZ will be in no hurry to raise the cash rate".

Toplis said the BNZ economists believed the RBNZ Governor Anna Breman "will already have known that this quarter's GDP was going to print large when she made her recent comment that the economy was evolving largely as expected while at the same time intimating there was no need for near term hikes in the cash rate". 

‘The rest is noise’

ANZ senior economist Matthew Galt said at face value, the upside surprise to the 0.4% September quarter GDP forecast made by the RBNZ in its Monetary Policy Statement (MPS) suggests the output gap [indicating spare capacity in the economy] is “now a little narrower” than the RBNZ's Monetary Policy Committee had assumed, “which would at the margin reduce their assessment of how disinflationary the current state of the economy is”.

“However, the RBNZ’s estimates of the output gap are based on a wider suite of metrics than just GDP, and their Q3 estimate of -1.9% implied considerable spare capacity, of which the upside surprise today will have absorbed only a small portion.”

Galt said: “Given recent quarter-to-quarter volatility, our take is that about half the strength in Q3 is signal while the rest is noise. We suspect the RBNZ will view it much the same way.”

“The RBNZ sees the OCR staying at its current level for some time - a message reinforced by the Governor’s comments earlier this week - and it will take more than today’s GDP data to materially shift that view.”

“The RBNZ will assess GDP in the context of wider measures of capacity pressures and activity, which have been improving, but not uniformly.”

Galt said overall, Thursday’s GDP data would give the RBNZ confidence that the economy is turning upwards, but “the RBNZ has been careful not to put too much weight on a single GDP print, given volatility”.

‘GDP alone is unlikely to be the silver bullet to bring hikes forward’

ASB economist Wesley Tanuvasa and chief economist Nick Tuffley said "the elephant in the room" is the tightening of financial market conditions, (accompanied by rising mortgage and deposit rates), seen since the RBNZ's November OCR review.

"Swap yields have advanced sizeably, and financial markets are now pricing in [OCR] hikes by around September 2026, deviating from the RBNZ’s November guidance of early 2027 policy normalisation," the economists said.

"While we acknowledge that today’s strong GDP may spook markets further, we must stress how noisy GDP data are, and that GDP is only one of a myriad of inputs that influence the interest rate outlook.

"GDP alone is unlikely to be the silver bullet to bring hikes forward – although markets seem to have already moved,” they said.

“This looks to be an example of how important clear central bank communication is. A lack of clarity constrains the passthrough of intended monetary policy.

“Therefore, we are not surprised by Governor Breman’s recent comments earlier in the week, which have attempted to calm markets down. We await Q4 CPI (consumers' price index) inflation in January 2026 for signs that hikes could be brought forward," Tanuvasa and Tuffley said.

Small chance of OCR cut 'likely more remote now'

Westpac NZ senior economist Michael Gordon said from the RBNZ’s point of view, Thursday's GDP result represents an upside surprise.

“But the surprise stems from the sectoral data that has been released in the couple of weeks since the November Monetary Policy Statement, rather than what was revealed today.

“This is in the end a stronger outcome than the RBNZ thought at the November Monetary Policy Statement", Gordon said, “and will imply an assessment of less excess capacity”.

“However, we should remember that market pricing is well ahead of the RBNZ right now, and hence there’s likely no need to be pricing in significant additional tightening in 2026.”

Gordon said: “Although perhaps that small chance of a further cut in 2026 is likely more remote now in the RBNZ’s eyes.”

‘We are growing’

Speaking to reporters on Thursday, Finance Minister Nicola Willis said Thursday’s GDP results “demonstrates that having now adjusted to global conditions - businesses, investors, our economy is feeling confident”.

“Exports are up, despite all the challenges the world has thrown at us. Manufacturing is up. We are growing.”

When asked about criticism and people potentially saying this [recovery] is delayed, Willis said: “There’s always a Christmas grinch. I am with every New Zealander who would have liked to have seen this sooner.”

“I feel for everyone who has been through a tough time … What we as a Government have said is that if we keep focusing on fixing the basics - get inflation down, interest rates down, get out of the way of investment - then we will see growth.

“That is happening now and is set to continue. We have to look to the future, acknowledging that yes, we have had a difficult few years as a country.”

Labour's finance and economy spokesperson Barbara Edmonds said “Governments should be judged on whether families are better off. Today’s data confirms what people are already feeling: Christopher Luxon is making things worse, not better".

“Christopher Luxon has no idea what life is like for most New Zealanders,” Edmonds said.

“So, when he stands up and says, ‘the economy is turning a corner,’ let’s be clear about what he really means: the economy is working for a few - not for the rest of New Zealand.”