New Zealand’s economy certainly came roaring back in the first quarter of 2023. The same GDP—our Gross Domestic Product—just grew by 0.8% over last quarter. This growth slightly exceeded the first estimates of growth at 0.7% q-o-q. It beat the Reserve Bank of New Zealand’s forecast of 0.4% q/q, marking a sharp rebound in economic activity. Annual GDP was still negative, contracting by 0.7% y/y, showing that although the recovery has started, serious headwinds have been met.
New Zealand’s economy has grown for the second quarter in a row. This trend indicates that it has found a cyclical floor. This news comes as annual per capita GDP continues to sink deeper into the red. So why are economists and policymakers chicken-littling about this new trend?
During this time, the services and manufacturing sectors led the way to the quarterly GDP gain, according to the State Department of Commerce. Business services especially had extreme momentum with a big 2.4% q/q growth rate. The manufacturing and construction sectors indicated stabilization following consistent contraction.
“New Zealand’s Q1 GDP expanded by 0.8% q/q (-0.7% y/y), marginally above our estimate (0.7% q/q), and stronger than the Reserve Bank of New Zealand’s (RBNZ’s) projection (0.4% q/q).” – Bader Al Sarraf and Nicholas Chia
Even given these positive signs, analysts are warning not to get too comfortable. Despite the expansion being good news indeed, they warn that the economy is still pretty darn fragile. Real per capita GDP is shrinking. External pressures such as tariffs impacts, weakening consumer momentum and growing global volatility are making the immediate future arcane at best.
“Though the expansion is welcome, the economy remains fragile. Annual per capita GDP is still contracting, and headwinds from tariffs, waning consumer momentum and global volatility cloud the near-term outlook.” – Bader Al Sarraf and Nicholas Chia
A closer look at the sectors driving the Q1 GDP growth shows a strong but widening recovery from the pandemic related downturn. In addition to the trends of strong performance in business services, we’re seeing positive movement indicating stabilization in the construction and manufacturing sectors as well. Since March, a number of high-frequency indicators point to a likely unprecedented drop in economic activity. This is worrisome, as it suggests we are potentially headed into something like a stagflation-like dynamic.
“A breakdown of Q1 GDP growth reveals a modest but broadening rebound. Business services showed firm momentum (2.4% q/q), alongside stabilisation in manufacturing and construction. Although Q1 data paints a stronger starting point for 2025, high-frequency indicators since March suggest that activity may have already rolled over, with risks now tilting towards a stagflation-like dynamic.” – Bader Al Sarraf and Nicholas Chia
As New Zealand finds its way through this challenging economic picture, policymakers will have to stay on their toes. Addressing the underlying issues contributing to the contraction in per capita GDP will be crucial for sustaining growth momentum in the coming quarters.