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New Zealand’s economy expanded more strongly than expected in the third quarter, signaling that aggressive interest-rate cuts are finally reviving activity after last year’s deep recession. Falling borrowing costs are beginning to lift key sectors, helping the country emerge from a period of contraction.
Stronger-than-expected GDP rebound
Gross domestic product rose 1.1% in the three months through September after a downwardly revised 1% contraction in the previous quarter, Statistics New Zealand said. Economists had forecast a 0.9% expansion. On an annual basis, GDP grew 1.3%, matching expectations and marking the first year-on-year increase since mid-2024.
The data point to a clear turnaround following a prolonged downturn, suggesting that monetary easing is gaining traction.
Rate cuts start to gain traction
Since August last year, the Reserve Bank of New Zealand has slashed the Official Cash Rate by 325 basis points to 2.25% in a bid to restart economic growth. Recent improvements in retail spending, manufacturing output and construction activity indicate that these measures are beginning to work.
Despite the rebound, substantial spare capacity remains in the economy, limiting the risk that renewed growth will translate into higher inflation over the coming year.
Construction and manufacturing lead the recovery
The third-quarter expansion was driven by a recovery in building and factory output. Construction activity increased 1.7% over the quarter, while manufacturing output rose 2.2%. Exports and business services, including areas such as computer system design, also contributed positively to growth.
This combination suggests a broad-based improvement rather than a narrow sectoral bounce.
Markets remain calm
Financial markets showed little reaction to the stronger GDP figures. Government bond yields and the New Zealand dollar were largely unchanged, with the currency trading around 57.75 US cents. The muted response reflects investor caution over the durability of the recovery and the future path of monetary policy.
RBNZ outlook and inflation path
While the Reserve Bank has said its central scenario is for the policy rate to remain on hold through 2026, some investors have begun to price in a possible rate hike as early as the third quarter. Governor Anna Breman has pushed back against those expectations, noting that financial conditions have tightened more than projected and that recent data remain broadly in line with the bank’s November forecasts.
The RBNZ expects inflation to slow toward 2% next year from around 3% currently, reinforcing the case for maintaining a supportive policy stance.
As International Investment experts report, New Zealand’s stronger-than-expected GDP rebound highlights the effectiveness of aggressive rate cuts, but the recovery remains fragile. With excess capacity still evident, policymakers are likely to prioritize sustaining growth over tightening policy until inflation pressures clearly re-emerge.