ASB's Kim Mundy says look past Thursday's number — four hikes by year-end is still the base case
Barring a sizeable surprise in either direction, Thursday's Q1 GDP result is unlikely to shift the RBNZ's thinking on the OCR — and ASB is already looking past it. The bank still favours a July start for rate hikes and has pencilled in four 25 basis point increases over the remainder of 2026.
ASB senior economist Kim Mundy (pictured) is forecasting production GDP growth of 0.8% for the March quarter — slightly below the RBNZ's own 1.0% pick from the May Monetary Policy Statement, and 1.0% higher on an annual basis. That result would confirm three consecutive quarters averaging 0.6% growth — enough, in ASB's view, to validate that the recovery was real, even if uneven.
Mundy cautioned against over-indexing on the number itself.
"It's more important to look at the momentum and breadth of growth, rather than the headline number in isolation," she said, noting that the unallocated component — a statistical adjustment factor including a seasonal balancing factor — is expected to add around 0.3 percentage points to the headline and can swing the result materially.
A recovery that was still patchy
ASB's sectoral breakdown points to broadening but uneven growth. The services sector, which accounts for around 70% of GDP, is expected to have expanded 0.8% in the quarter, led by professional services and wholesale trade, with arts and recreation, and retail trade and accommodation also contributing.
Tourism's contribution to the economy remains visible across the sector. Manufacturing also posted a strong quarter — ASB forecasts a 2% lift in activity across seven of nine sub-sectors, though off a low base with output still around 10% below its Q2 2021 peak. Agriculture continued to grow on solid milk production, though forestry and mining were notable drags with oil and gas production both down sharply.
Construction remained the weak spot, falling for what ASB expects was the second consecutive quarter — particularly in the non-residential space. Growth in residential consents offers some hope, though Mundy described the near-term outlook for the sector as subdued.
The real story starts in Q2
ASB is clear that Thursday's result, however solid, is already dated. The economic outlook had changed markedly by the end of Q1, with the Middle East conflict driving a negative supply shock now expected to soften momentum through the second quarter. Businesses are facing higher input costs and squeezed margins at a time when consumer demand is faltering.
In Mundy's assessment, "the importance of the data lies in the direction of travel and breadth of any strength" — and on that measure, the picture heading into Q2 is considerably less encouraging than where the economy started the year. For brokers, the practical implication is straightforward: a Q1 print in line with ASB's forecast keeps July firmly in play, and four hikes by year-end remains the base case.
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