By Lucy Craymer
WELLINGTON, Dec 18 (Reuters) – New Zealand’s economy returned to growth in the third quarter, confirming early indications of an improvement in momentum after an extended period of weak activity and making the already remote chance of the central bank cutting the cash rate less likely.
Official data released on Thursday showed gross domestic product rose 1.1% in the third quarter from the prior quarter, better than analysts’ forecast of 0.9% growth and the Reserve Bank of New Zealand’s forecast of 0.4% growth.
It followed a revised quarterly 1.1% contraction in the second quarter.
Year on year, the economy grew 1.3%.
“Data have improved and the economic starting point is higher, but spare capacity remains in excess – it is a long climb to escape this economic hole.
But we take growth where we can get it,” ASB Bank economists said in a note.
New Zealand’s economy has struggled since slipping into recession last year, contracting in three of the last six quarters with confidence down and unemployment on the rise.
In an extended effort to shore up growth, the Reserve Bank of New Zealand has cut the official cash rate by 275 basis points since August 2024, including by a quarter percentage point in November when it also signalled an end to the easing cycle.
The central bank expects the cash rate to remain on hold at 2.25% throughout next year, as policymakers are of the view that the economy is on the mend and are wary of inflation rearing its head again.
Following the data release, the market slightly pared the chance of rate hikes in May 2026 to 11 basis points from 13 basis points.
The New Zealand dollar was little changed at $0.5774.
Westpac economists said in a note that while the GDP figures were a stronger outcome than the RBNZ thought at its November meeting and implied an assessment of less excess capacity, “it needs to be remembered that market pricing is well ahead of the RBNZ right now.”
“Hence there’s likely no need to be pricing in significant additional tightening in 2026.
Although perhaps that small chance of a further cut in 2026 is likely more remote now in the RBNZ’s eyes,” it added.
Although markets have priced in a chance of rate hikes next year, new RBNZ Governor Anna Breman pushed back against those bets this week and stressed that rates would likely remain low through the year.
(Reporting by Lucy Craymer; Editing by Alistair Bell and Jamie Freed)
