New Zealand’s economy has officially emerged from recession, with stronger-than-expected GDP growth in the final quarter of 2024 signalling potential recovery. Government data released this week shows that GDP rose by 0.7% in the December quarter, surpassing both analyst forecasts of 0.4% and the Reserve Bank of New Zealand’s (RBNZ) projection of 0.3%.
A Stronger-Than-Expected Rebound
After two consecutive quarters of economic contraction, New Zealand’s latest GDP figures represent a notable turnaround. The economy shrank by 1.1% in the September quarter, following a similar 1.1% decline in June, marking one of the deepest recessions outside of the COVID-19 pandemic and the 1991 downturn. The latest 0.7% GDP increase not only pulls the country out of recession but also suggests that fiscal and monetary policies may be beginning to have a stabilising effect.
Westpac senior economist Michael Gordon described the GDP result as a “genuine upside surprise”, noting that the growth was driven more by real economic activity than temporary seasonal factors. Similarly, Kiwibank economists acknowledged this as the first step in recovery but warned that economic momentum remains fragile.
Sectors Driving Growth and Those Still Struggling
According to Stats NZ, 11 out of 16 industries recorded growth in the December quarter, with rental, hiring, and real estate services, retail trade and accommodation, and healthcare and social assistance among the strongest performers.
The tourism sector also saw a significant boost, with international visitor spending rising sharply. Stats NZ economic growth spokesperson Katrina Dewbery noted that higher spending by foreign tourists had led to increased activity in accommodation, restaurants, bars, and vehicle rentals.
However, not all sectors experienced the same momentum. The construction industry continued its downward trajectory, contracting by 3.1% in the December quarter, marking its sixth consecutive quarterly decline. Information media and telecommunications also saw further weakness, driven by declining demand for telecommunications and internet services.
The Reserve Bank’s Monetary Policy and Interest Rates
Despite the stronger-than-expected GDP performance, the Reserve Bank of New Zealand is not expected to deviate from its current monetary policy strategy. The RBNZ has already cut the official cash rate (OCR) by 175 basis points since August 2024, bringing it down to 3.75%. Two additional 25-basis-point cuts are anticipated in April and May, with economists suggesting a possible third reduction later in the year.
The rationale behind these cuts has been to stimulate economic activity after the aggressive rate hikes in previous years, which had pushed borrowing costs higher and contributed to the slowdown. Inflation, which peaked at 7.3% in mid-2022, has now fallen within the RBNZ’s target range of 1-3%, reaching 2.2% in the most recent data. However, the central bank remains cautious, balancing the need for economic stimulus with the risk of a potential inflation resurgence.
External Risks and Long-Term Challenges
While the latest GDP figures provide some optimism, New Zealand’s economy remains vulnerable to global economic headwinds. A major concern is U.S. trade policy under President Donald Trump, particularly new tariffs that could impact global trade flows. Given New Zealand’s reliance on exports to both China and the U.S., shifts in trade dynamics could have ripple effects on local industries, especially in agriculture and manufacturing.
Economists also point to ongoing structural weaknesses, particularly in the construction sector, which has now contracted 7.3% over the course of 2024. Business services, public administration, and telecommunications also remain in a downturn, reflecting deeper economic challenges that may take longer to resolve.
Cautious Optimism Moving Forward
While the 0.7% GDP growth is a clear sign that New Zealand has exited recession, annual GDP for 2024 still declined by 1.1%—a contraction, but less severe than the -1.4% predicted by markets. This suggests that while the economy is showing signs of improvement, the recovery remains uneven across different industries.
Finance Minister Nicola Willis welcomed the GDP growth, calling it an indication that “better days are ahead” for businesses and households. However, opposition figures, including Labour finance spokesperson Barbara Edmonds, argued that many New Zealanders are not yet feeling the benefits, particularly given continued struggles in construction and infrastructure projects.
Looking ahead, the economy is expected to gradually recover over the coming quarters, supported by lower interest rates and stronger tourism and export performance. However, external risks, fragile consumer spending, and persistent sectoral weaknesses suggest that policymakers will need to carefully manage fiscal and monetary strategies to ensure a sustainable and broad-based recovery.