New Zealand GDP Beats Forecasts, Slows Rate Cut Expectations

New Zealand’s economy expanded more than expected in Q1 2025, strengthening recovery hopes after last year’s recession and giving the Reserve Bank of New Zealand (RBNZ) more leeway before making further interest rate cuts. According to Statistics New Zealand, gross domestic product (GDP) rose 0.8% in the March quarter, exceeding the Reserve Bank's forecast of 0.4% and analysts’ expectations of 0.7%. The previous quarter’s growth was revised down to 0.5% from 0.7%.

This stronger-than-expected performance signals a quicker rebound for the economy, which experienced a technical recession in 2024 with two consecutive quarters of contraction—the worst since 1991 outside the COVID-19 era. On an annual basis, GDP contracted 0.7%, slightly better than the anticipated 0.8% decline.

Westpac senior economist Michael Gordon said the RBNZ is likely to pause at its July cash rate review to assess ongoing economic developments. Since August 2024, the central bank has cut the official cash rate by 225 basis points, currently at 3.25%, and has signaled at least one more rate cut this year due to global trade risks.

Industry-wise, nine of 16 sectors showed growth, led by business services and manufacturing. However, declines were reported in arts, recreation, media, and telecommunications. The data release had minimal market impact, with the New Zealand dollar steady at $0.6028.

This economic resilience may delay aggressive monetary easing, as policymakers seek to balance inflation control with growth stability. The RBNZ is expected to stay cautious amid global uncertainty and domestic sectoral imbalances.