As usual, economists were cautious.
“Underlying economic momentum was firmer than we’d anticipated. However, it would be a stretch to describe today’s release as ‘strong’. We’d chalk this up to the economy bouncing off the bottom,” said ANZ economist Henry Russell.
“While the December quarter result is welcome news following the deep recession during mid-2024, activity is patchy and the economy is clearly still in the early stages of recovery,” said Infometrics chief forecaster Gareth Kiernan.
Kiwibank economists said they were acknowledging this “as the first step in the economy’s recovery”.
But BNZ head of research Stephen Toplis pointed out just how long that road to recovery might be.
“On a per-capita basis, our forecasts suggest the previous peak in activity will not be achieved until early 2028.”
Some of the quarter’s growth did not look sustainable, Toplis warned, noting a recent slump in consumer confidence.
Others also noted that more recent data had looked less buoyant.
“The underlying economic momentum for [the fourth quarter] is a bit faster than we expected, but we remain a bit underwhelmed by the results to date in high-frequency data for [the first quarter of] 2025,” said ASB economist Wesley Tanuvasa.
“We are also less convinced the [fourth-quarter] drivers of growth can maintain their pace in 2025, given the broader global headwinds.”
Economists noted that the big drivers for the solid result were the primary sector – which has benefited from strong agricultural export prices – and the tourism sector, which has continued to recover.
Stronger tourism numbers helped boost the services sector and lifted retail activity.
“An 8.2% lift in services exports was entirely responsible for the best export result in 18 months, and non-resident expenditure in New Zealand surged 10% over the quarter,” said Infometrics' Kiernan.
But putting aside tourism, consumer spending was “disappointingly weak”, he said.
Other sectors remained recessionary.
Construction was down 3.1% for the quarter, its sixth successive quarter of contraction.
That was enough to knock 0.2 percentage points off the total growth figure.
Professional services also struggled.
Business services, public administration, information media and telecommunications all remain in contraction.
With unemployment still rising, the feeling that the economy has turned a corner will depend a lot on which part of it people are experiencing.
Still, 11 of the 16 industries increased this quarter.
The largest rises were from rental, hiring and real estate services; retail trade and accommodation; and healthcare and social assistance, Stats NZ said.
“Higher spending by international visitors led to increased activity in tourism-related industries such as accommodation, restaurants and bars, transport and vehicle hiring,” said Stats NZ’s economic growth spokeswoman Katrina Dewbery.
Meanwhile, GDP per capita rose 0.4% during the December 2024 quarter, its first rise in two years.
A measure of the economy’s growth per person, that’s good news. But the result is bolstered by a sizeable fall in New Zealand’s rate of population gain, with net migration dropping back from record highs.
The better-than-expected result isn’t likely to shift the Reserve Bank’s (RBNZ) outlook for interest rates.
“We don’t see any major implications for the RBNZ,” said ANZ’s Russell.
“While headline growth was stronger than the RBNZ’s forecast, it’s worth remembering that the expansion followed two quarters of sharp contraction, meaning the level of activity remains well into disinflationary territory.”
“Indeed, given the starting point, we think there’s plenty of scope for the economy to grow quickly in the near term without adding upward pressure to inflation.”
As the Finance Minister acknowledged, “many families and businesses are still suffering the after-effects of high inflation and interest rates”.
But there are likely more rate cuts coming and many homeowners are still to pre-fix and lock in gains from the cuts that have already been made.
“The outlook is positive,” Kiwibank economists said.
“The RBNZ has delivered 175 basis points of rate cuts since August, with more on the way.”
In time, this easing should translate into stronger economic activity, they said.
“Trust the process. For now, with the cash rate still above estimates of neutral (around 3%), demand and economic activity will remain slightly constrained in the near-term.”
“But as we move closer to a neutral rate environment, we anticipate momentum to grow. The second half of this year should see a material lift in economic activity.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.
