Westpac lifts June quarter GDP forecast, tipping strongest result since 2023
New Zealand's economy looks to have weathered the Middle East oil shock better than feared, with Westpac upgrading its June quarter GDP forecast ahead of next week's official data release.
Forecast lifted on stronger sectoral data
Westpac's upgrade echoes a similar assessment from ratings agency Moody's, which this week said New Zealand's recovery was now under way, pointing to strong agricultural export prices, a tourism rebound and the delayed effects of earlier rate cuts.
Westpac senior economist Michael Gordon now expects GDP to rise 0.2% for the June quarter, an upgrade from the bank's earlier pick of a 0.1% decline, with the annual growth rate accelerating sharply from 1.5% to 2.4% as a weak June quarter last year drops out of the calculation. The revision follows stronger-than-expected data from construction, wholesale trade, and agriculture over the past week.
Gordon said the result reflects an economy that has coped better than anticipated with the shock of the earlier US-Iran conflict.
"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," he said.
If realised, Gordon noted this would mark "the strongest June quarter outcome since 2023."
Westpac's forecast also comes in ahead of the RBNZ's own flat prediction in last week's Monetary Policy Statement, though Gordon cautioned the Reserve Bank lacked access to the most recent activity data when it compiled that view.
Retail spending the weak link
Construction was a key contributor, with the June quarter building work survey showing a 4.8% lift in activity. Wholesale trade volumes jumped almost 3% for the quarter, while agriculture benefited from a 2.3% rise in seasonally adjusted milk production.
Retail, however, remains the soft spot in the data, with accommodation and food services bearing the brunt of higher fuel prices squeezing household budgets. Overseas visitor arrivals continued to rise, helping offset some of the weakness in tourism-linked sectors.
Rate cycle nears peak as RBNZ eyes inflation signals
Advisers should note the RBNZ's quarter-point hike to 2.75% on 2 September — with major banks' forecasts for where the cycle ultimately peaks now ranging from 3% to 3.75%. Despite that gap between Westpac's and the RBNZ's forecasts, Gordon said the RBNZ is likely to weigh upcoming inflation indicators, including the NZIER business survey on 6 October and the CPI release on 22 October, more heavily than the GDP data when deciding its next move on the official cash rate.
The central bank has already delivered 50 basis points of tightening across recent reviews and appears to be leaning towards a wait-and-see approach at its 28 October review, meaning borrowers may see limited near-term movement on rates despite the improving growth picture.
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