While GDP data shows economic growth, ‘it was still barely at a pace that would have halted the rise in unemployment or added to domestic inflation pressures,’ Westpac senior economist says

Finance Minister Nicola Willis says based on the information she has received, even in the worst case scenarios, the Government expects the economy to keep growing over the coming year.

"The question is how much slower than it might have been?" Willis said.

Her comments come with Thursday's Statistics NZ figures showing New Zealand's economy grew just 0.2% in the December quarter, and with the impacts on fuel prices from the conflict in the Middle East ongoing. Alongside Prime Minister Christopher Luxon, Willis gave an update on NZ's fuel situation.

NZ's gross domestic product (GDP) grew 0.2% in the December quarter. The figure was down on a downwardly-revised 0.9% GDP figure for the September 2025 quarter, but does mean the country has recorded three quarters of growth now in the past four.

The 0.2% figure for the December quarter is, however, well below the Reserve Bank’s 0.5% projection.

'Fierce headwinds'

“Today’s figures may ultimately prove to be of little more than historical interest, given the pall cast over the global economy in recent weeks by the Iran conflict," Westpac senior economist Michael Gordon said.

“But from the Reserve Bank's (RBNZ) point of view, they will note that while the New Zealand economy was regathering some momentum coming into this latest shock, it was still barely at a pace that would have halted the rise in unemployment or added to domestic inflation pressures."

Kiwibank economists Jarrod Kerr and Sabrina Delgado noted NZ's "looking into some fierce headwinds.”

“The escalating conflict in the Middle East, and the resulting lift in oil prices have added significant downside risks to growth (globally)."

“Heightened uncertainty is likely to prompt businesses to pull back, rising fuel costs will further squeeze household budgets, and a global slowdown could weigh heavily on Kiwi exports. Our shining star, tourism, could come under pressure,” Kerr and Delgado said.

ANZ senior economist Matthew Galt said given all that’s come to pass in the global economy in recent weeks, the December quarter GDP release was always going to take a back seat to the global headlines.

Gait said the economy had shown moderate growth on average over the second half of 2025, if a little weaker than the RBNZ had been assuming, and details of the latest GDP data “don’t challenge the picture of a mild undershoot of RBNZ and market expectations”.

“For them, the forecast miss isn’t large enough to prompt a major rethink.”

“However, at the margin, weaker-than-expected GDP gives them a little more latitude to look through the near-term inflationary impact of the oil shock and focus on the potential medium-term implications,” Galt said.

Infometrics chief forecaster Gareth Kiernan said the 0.2%  economic growth in December was disappointing, “continuing the inconsistency in activity that has dogged the economy throughout the last year”.

“The fact that central government spending and an increase in inventory levels made the biggest positive contributions to growth in the December 2025 quarter highlights the economy’s static nature,” Kiernan said.

“Tight fiscal conditions mean that faster government spending cannot sustain growth in coming quarters, and increased manufacturing stock levels suggest that firms are producing in anticipation of better demand conditions that have yet to materialise.

"The conflict in the Middle East and its impact on fuel prices are likely to undermine consumer confidence and economic activity levels that were already fragile, he said.

“Some effects are likely to show through in March quarter data, but if the conflict continues, the full effects will be more evident in the June quarter.”

Inflation and the Official Cash Rate

Kiernan said significantly higher inflation risks are arising at a time when inflation was already above the RBNZ’s 1% to 3% target range, at 3.1%, and this could also “necessitate earlier interest rate rises by the [central] bank, further undermining economic growth prospects later this year”.

New Zealand Institute of Economic Research (NZIER) deputy chief executive Christina Leung said the RBNZ faces a tricky balancing act of supporting a slow economic recovery while containing inflation, especially in the current fragile environment.

“The longer the disruptions to global supply chains and oil supply due to the US-Israeli war, the more likely they are to weigh on New Zealand’s economic recovery and to keep high inflation from easing,” Leung said.

NZIER has pencilled in July for when the RBNZ will begin to raise the Official Cash Rate (OCR) from 2.25%, but Leung said they recognise the risk of a later start, “given the potential downside risks to the growth outlook”.

ASB senior economist Kim Mundy said a lot has changed since the end of 2025, and they didn’t expect this to change the dial in terms of the OCR outlook.

Mundy said they believed there were few implications from the latest GDP release for the RBNZ’s point of view.

“Medium-term inflation risks are firmly skewed to the upside, while economic growth looks set to be weaker than would have been the case in the absence of the conflict," said Mundy.

“If demand remains weak, tourism numbers drop off and fuel costs remain high, the RBNZ is going to increasingly find itself in an increasingly uncomfortable spot.”

‘Starting from a much stronger position’

Willis said the latest GDP data showed the economy was growing at the end of last year.

“The conflict will have an impact on the economy, but we are starting from a much stronger position now than was the case in the past few years, when high inflation and high interest rates were weighing down on people,” Willis said.

But the full impact of the conflict in the Middle East would depend on the severity of the disruptions, she said, and how long they last.

“But realistic scenarios have so far shown growth continuing in 2026.”

‘Left New Zealand weaker'

But Labour finance and economy spokesperson Barbara Edmonds said growth of 0.2% is “a long way from the ‘recovery’ Christopher Luxon and Nicola Willis keep talking about.”

“For 32,000 people out of work, 2000 leaving every week, and families struggling to get by, those claims ring hollow.” 

“They have left New Zealand weaker and more exposed to global shocks. In fact, the economy is smaller than when they took office," Edmonds said.

“Let’s be clear, what we’re going through now would be easier to deal with for families if National hadn’t made things much worse,” she said.

“Sadly, it’s New Zealand households who are left to fend for themselves as prices continue to rise. National has offered no plan and no relief for families who are doing it tough.”