New Zealand economists have revised their near-term growth outlook downwards. The latest NZIER survey projects an annual average growth rate of -0.8 per cent for the year leading to March 2025, with an expected increase to 2.1 per cent the following year.
These changes in GDP forecasts result from recent alterations to historical GDP data by Stats NZ, which indicated an economic contraction in the June and September quarters of 2024. The forecast suggests that lower interest rates may support a recovery in economic growth beyond 2025.
Economic Weakness And Revised Forecasts
What this means is that New Zealand’s economy has been weaker than previously thought. Stats NZ’s revisions confirmed that the country had already experienced two consecutive quarters of contraction in 2024, which fits the definition of a technical recession. Forecasts now indicate a slower rebound, with the economy shrinking further before returning to growth.
Lower interest rates are expected to play a role in supporting a turnaround, but that will take time. Central bank policy typically influences growth with a delay, meaning any benefits from rate reductions may not be felt immediately. Until then, the economy remains in a fragile position, and that reality alters expectations for financial markets.
When growth slows, spending and investment tend to follow. Businesses often hesitate to expand, and consumers can become more cautious. That can weigh on corporate earnings, affecting valuations in equity markets. At the same time, declining growth projections can shift expectations for monetary policy, influencing currency movements and interest rate markets.
For those in markets that respond strongly to rate expectations, the focus should be on how policymakers interpret these revisions. If economic weakness persists, we would anticipate further adjustments in interest rate forecasts. Any suggestion of policy changes that are more aggressive or more restrained than anticipated will create opportunities.
Impact On Inflation And Market Sensitivity
These developments will also influence inflation expectations. If demand weakens, price pressures may ease. If central bankers see lower risks of persistent inflation, that shapes their next steps. Inflation-linked securities, bond markets, and other rate-sensitive instruments will respond accordingly.
Long-term forecasts still point to recovery, but in our view, short-term risks have increased. That affects positioning across a broad range of assets. With GDP revisions revealing weaker momentum, we expect renewed market sensitivity to data surprises. Any upcoming reports on employment, consumer demand, or inflation that diverge from expectations will likely generate stronger reactions than they otherwise would.
Reassessing exposure to shifting policy expectations and economic projections will be key in the coming weeks. Slower growth changes the outlook. Some will see risks, others opportunities—but ignoring revised data would be a mistake.
