Stronger growth clouds RBNZ's next move on interest rates
New Zealand's economy grew 0.2% in the June 2026 quarter, according to fresh Stats NZ figures, beating the flat outcome the Reserve Bank had pencilled in and lifting annual growth to 2.6% – its strongest pace since June 2023.
The result landed broadly in line with what bank economists had been expecting, with construction and resilient export demand doing much of the heavy lifting, even as the ongoing US-Iran conflict kept fuel prices elevated through the quarter.
Growth uneven across sectors, construction leads the way
Construction was the standout performer, rebounding after a period of rebalancing to grow 2.7% for the quarter. Goods-producing sectors were broadly supported by strong external demand, while services delivered a mixed picture: wholesale and public administration outperformed, but discretionary spending – including retail – was notably weaker as households pulled back amid the fuel price shock.
Westpac senior economist Michael Gordon noted that "the New Zealand economy appears to have held its ground through the US-Iran conflict," though the impact was clearly felt in areas like travel and hospitality as households tightened discretionary spending.
Household consumption itself came in flat rather than the modest decline economists had expected, while residential investment rose a solid 4.4% for the quarter – a sign builders are keeping pace with a recent lift in consent volumes.
That domestic resilience was echoed in New Zealand's external accounts this week: New Zealand's current account deficit narrowed to $3.8 billion in the June quarter, though sizeable historical revisions reshaped the wider trend, with the deficit still expected to widen again in coming quarters as higher energy import costs feed through.
What it means for the next OCR call
The stronger-than-expected result complicates the Reserve Bank's next move. ASB economist Wesley Tanuvasa argued the result helps settle some of the Reserve Bank's nerves about the recovery, noting that "New Zealand has a stronger chin against this oil supply shock haymaker" than earlier feared, and retained ASB's call for the official cash rate to reach 3.25% by year-end, via 25 basis point hikes in October and December.
Westpac, by contrast, expects the next hike to land in December rather than October, pointing to the Reserve Bank's stated preference to see how the 50 basis points of tightening already delivered plays out before moving again.
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