New Zealand’s gross domestic product fell by 0.9% in the June quarter, a reduction well over market expectations, Stats NZ data show.
Expectations were for a 0.4% decline in gross domestic product (GDP) while Reserve Bank forecasts were for a 0.3% drop.
The worse-than-expected outcome could mean the Reserve Bank will cut its Official Cash Rate (OCR) more aggressively than was previously thought, economists said.
Stats NZ said the quarterly decline was driven by manufacturing, down 3.5% and construction, down 1.8%.
Per capita GDP fell by 1.1% in the quarter.
The fall followed a revised 1.2% rise in GDP in the March quarter.
For the June year, Stats NZ said, the decline in GDP was 1.1%.
Activity decreased in the June quarter across two out of three high-level industry groups: goods-producing industries fell 2.3%, and primary industries fell 0.7%.
Service industries were flat.
“The 0.9% fall in economic activity in the June 2025 quarter was broad-based with falls in 10 out of 16 industries,” Stats NZ economic growth spokesman Jason Attewell said.
GDP has now fallen in three of the past five quarters.
Wholesale interest rates and the New Zealand dollar fell after the news.
By late morning, key two-year swap rates were down 6.5 basis points at 2.75% and the New Zealand dollar was off by 20 pips at US59.45c.
The bigger-than-expected fall may put pressure on the Reserve Bank to be more aggressive with its cuts to the OCR, which sits at 3.0%.
The bank cut the rate by a quarter of a point on August 20.
The bank’s next opportunity is on October 8.
ANZ strategist David Croy said the GDP number was a “significant undershoot” relative to market expectations.
“It certainly suggests that the Reserve Bank should have cut in July, and I wouldn’t be surprised if the market now starts to toy with the idea of a bigger cut next month,” Croy said.
Capital Economics said a sharp decline in output over the quarter puts a “bumper” 50-basis-point cut in play for the Reserve Bank at its October meeting.
Market expectations were for the OCR to bottom out with a terminal rate of 2.5% by February 2026.
“Risks to our forecast for a terminal rate of 2.5% are also tilted to the downside,” Capital Economics said.
“The 0.9% fall in real GDP in Q2 was substantially worse than anyone had expected.
“That puts the magnitude of the decline on par with what we saw at the start of last year’s recession and leaves GDP 1.1% below its year-earlier level.”
Westpac economists said the weaker-than-expected outcome would no doubt encourage the Reserve Bank in its intentions to cut the OCR further this year.
“However, we also need to consider the implications for the quarters ahead.
“Our view is that September quarter GDP growth was already tracking better than the RBNZ’s [very soft] forecast, and there are aspects of today’s figures that could see an offsetting bounce next quarter, further boosting the reported growth rate.”
Finance Minister Nicola Willis said the GDP data reflected the impact that global uncertainty has had on consumers and businesses.
“The economy had been growing strongly in the previous six months, but suddenly had the stuffing knocked out of it.
“I feel for people and businesses who have been affected.”
Willis said there were signs the economy was growing again.
“Lower interest rates are filtering through the economy.
“There is evidence of increased mortgage lending.
“And the impact of tariffs has not been as disruptive as initially feared.”
Willis added that the outlook for most export sectors remained positive.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.