Economists expect embers to have kept the fire of Gross Domestic Product growth burning in the June quarter

After sifting through the financial tea leaves, economists at New Zealand’s largest banks anticipate the latest Gross Domestic Product (GDP) figures due out on Thursday to show marginally brighter economic growth than previously expected.

But the June quarter GDP certainly isn’t expected to return a “blockbuster result” of epic proportions.

GDP is NZ’s official measure of economic growth and provides a snapshot of how the economy is performing. NZ’s economy grew by 0.8% in the March quarter, a touch below the Reserve Bank’s (RBNZ) 1% projection and wasn’t heavily impacted by the Middle East conflict and late-quarter fuel price increases.

But the RBNZ expects a much more subdued result for the June quarter GDP, released on September 17, forecasting economic growth to be flat in the three months to June. 

In its September Monetary Policy Statement (MPS), the central bank projected 0.5% GDP growth in the September 2026 quarter and another 0.5% increase in the December quarter.

“We assume second‑round demand effects from the Middle East conflict caused June 2026 quarter GDP to be about 0.6% lower than otherwise, due to higher fuel prices, lower real incomes and greater uncertainty,” the Reserve Bank said.

Shaking off the shock

According to Westpac NZ senior economist Michael Gordon, GDP for the three months to June had previously looked more dire. The bank now expects a “modest lift” of 0.2% in GDP activity over the June quarter, an upgrade from Westpac NZ’s previous estimate of a GDP decline of 0.1%.

“While hardly a blockbuster result, that’s a lot better than we hoped for in the early stages of the US-Iran conflict, when we were staring down the barrel of what could have been the biggest global energy shock in history,” he said.

“Instead, the New Zealand economy has done well in shaking off the effects of this shock, helped by still-low interest rates and the ongoing strength in many of our export industries.”

The price for Brent crude oil, the global benchmark used to set oil prices, skyrocketed in April and May this year, due to geopolitical tensions around the closure of the Strait of Hormuz, one of the most important sea channels in the world for oil transport. The price of Brent crude oil peaked at the end of April, at US$126.41 a barrel.

Brent crude oil prices have jumped again in September, back above $US100 per barrel and reaching US$108 per barrel on Friday, driven by escalating conflict in the Middle East. This is the first time Brent crude oil prices have been this high since May.

Gordon said Westpac NZ’s change in forecast reflected the recently released business financial data and the building work data from Statistics NZ, which showed a greater than expected degree of resilience across a range of sectors, particularly construction, wholesale trade and agriculture.

Construction in the June quarter building work survey showed a 4.8% increase in housing and non-residential work activity, he said. Wholesale trade lifted nearly 3% in volume terms on a quarterly basis, taking annual growth above 8%. Agriculture largely reflected the “continued strength” in milk production, up 2.3% on a seasonally adjusted basis, according to Gordon.

Like Westpac, BNZ is also projecting a 0.2% GDP increase in the June quarter. The bank was initially forecasting a decline of 0.2%. According to BNZ senior economist Doug Steel, the GDP data for the three months to June still looks “relatively subdued” but may now come “with a positive hue rather than a negative one.”

Steel said this would be driven by gains in the primary sector, pointing to goods-producing and wholesale trade sectors in Stats NZ’s business financial data, as Westpac’s Gordon did.

“Within manufacturing, there looks to have been strong gains in food processing, including dairy and meat, wood and paper products, non-metallic mineral products and transport and machinery equipment. These more than offset weakness in textiles, printing, metals, chemicals, and furniture manufacturing,” Steel said.

“In contrast, there are question marks around consumer-focused sectors like retail trade. While retail sales volumes are higher than a year ago, additional intense inflationary pressure from higher fuel costs slowed its annual growth in Q2,” Steel said.

Economic growth could be 'reduced to embers'

Kiwibank is forecasting just a 0.1% increase in the June quarter. Kiwibank economist Elliott Lowe said because consumer spending makes up around half of the country’s GDP, this will “weigh heavily” on the headline GDP figure.

“Kiwi households and businesses took a big hit to their confidence in April and May. This was driven primarily by uncertainty around fuel prices, with a recovery in confidence from June and July corresponding to lower and more stable oil prices. Despite the rebound, April and May comprise two-thirds of the June 2026 quarter, which will weigh on next week’s data,” Lowe said.

“Overall, we are looking to the GDP data with a sense of inevitability that the result won’t be great. But while economic growth may be reduced to embers for the June quarter, we think we are already seeing signs of a spark that should lead to better times ahead.”

ANZ NZ shares the same 0.1% GDP forecast for the June quarter as Kiwibank, up from an earlier forecast of a 0.2% contraction.

ANZ senior economist Matthew Galt said a GDP print “slightly above” the RBNZ’s flat forecast may reassure the central bank about the economic recovery at the margin.

“The sectoral data for the quarter shows a very mixed picture across industries as higher fuel prices and global uncertainty hit. Industries exposed to discretionary spending, transport and tourism look to have gone backwards in the quarter, giving up some of their solid growth over the prior year. However, the data showed enough growth in other parts of the economy to more than offset, preventing overall GDP from falling.”

But whatever the result, Galt said the June quarter GDP won’t be a material enough surprise to “meaningfully shift” the central bank’s view on when to raise the Official Cash Rate (OCR) next.

“The RBNZ’s Monetary Policy Committee (MPC) has signalled that, at this stage, they believe they can put off the next OCR hike until December, while emphasising that policy is not on a pre-set course and that the timing is highly uncertain. All members saw significant downside risks to activity at the September MPS,” he said.

Passing the growth baton

Out of the big banks, ASB is anticipating the highest level of GDP growth in the June quarter, forecasting a 0.3% increase. ASB economist Wesley Tanuvasa said the bank expects economic growth in the three months to June to be concentrated in primary and goods-producing sectors.

“Ironically, these sectors are more fuel-intensive. However, robust global demand for our exports and the construction sector coming off a low base should help offset this. It can take time for the effects of a negative oil supply shock to fully wash through the NZ economy. Services, particularly those related to discretionary spending, are expected to be meaningfully weaker. We expect NZ household spending declined over the quarter,” Tanuvasa said.

“Looking ahead, it becomes a bit of [a] relay race where external sectors pass the growth baton to domestic drivers to allow the economic recovery to mature. While timelier data supports our view that recovery is ongoing, there is a risk this is more gradual given the headwinds facing NZ households. The hope is that this period of rebalancing allows an avenue for economic growth to be more durable. That would, in turn, make the central banks’ job easier to deliver low and stable inflation.”

The Reserve Bank raised the OCR by 25 basis points to 2.75% in early September, delivering a back-to-back hike in an effort to curb inflationary pressures.

RBNZ Governor Anna Breman has said there is likely to be a further increase to the OCR, but the timing is highly uncertain and she has hinted that there could be a possible pause when the OCR is next reviewed in October.