New Zealand economy contracts in second quarter, making room for tariff cuts Reuters

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s economy contracted in the second quarter as activity fell in a number of major industries, keeping the central bank on track for more interest rate cuts this year.

Official data released Thursday showed gross domestic product fell 0.2 percent in the June quarter from the previous quarter, better than analysts’ forecasts for a 0.4 percent contraction.

It followed a 0.1 percent increase in the first quarter, which was revised down from a previous estimate of 0.2 percent growth.

Annual GDP fell 0.5 percent, Statistics New Zealand data showed, which was in line with market expectations.

The New Zealand dollar was almost unchanged at $0.6213 after the data, which was seen as too dated to affect the outlook for rates.

Markets are fully pricing in another quarter-point cut in October, with a 28% chance of 50 basis points. The swaps have 84 basis points of pricing down through the end of the year.

“Today’s data highlights that the economy was indeed in a weak period in the second quarter, with widespread evidence that private demand is weak and that this is spilling over into several sectors of the economy,” said the chief economist of ASB Bank, Kim Mundy. a note.

The data showed activity fell in nine out of 16 industries, with all sectors of retail trade and accommodation, agriculture, forestry and fishing and wholesale trade all weaker. Manufacturing saw the biggest improvement.

Mundy said the data had not materially changed the picture for the Reserve Bank of New Zealand, and ASB Bank continued to expect the central bank to cut another 50 basis points by the end of the year.

The central bank cut the official cash rate for the first time in more than four years at its last meeting in August, and RBNZ Governor Adrian Orr said he would like to make two more cuts by Christmas.

This is in line with other major central banks that have started to cut cash rates. The US central bank kicked off an anticipated round of interest rate cuts on Wednesday with a half-percentage-point cut higher than usual. The European Central Bank and the Bank of Canada cut interest rates.

Westpac chief economist Michael Gordon said financial markets would no doubt focus on the idea that the Federal Reserve’s decision opened the door to 50 basis point rate cuts elsewhere, including in New Zealand.

But “there is not much in the domestic data to support the RBNZ accelerating the pace of easing beyond what it had already signaled in its August policy statement,” he said.