New Zealand’s economy grew 0.2% in the June quarter, beating the Reserve Bank’s flat forecast despite a global fuel price shock, writes Henry Oliver in today’s excerpt from The Bulletin.

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New Zealand’s gross domestic product rose 0.2% in the three months to June, following growth of 0.9% in the March quarter, RNZ’s Gyles Beckford reported yesterday. The economy is now 2.6% larger than a year ago, with average annual growth of 1.7%. While 0.2% does seem rather small, it is better than the Reserve Bank’s forecast of zero growth, though within the 0.1% to 0.3% range bank economists had picked.

Finance minister Nicola Willis welcomed the news, saying the figures defied expectations of a contraction. “That’s a credit to New Zealand’s construction sector, who saw their largest increase in activity since June 2023,” she said. “Our exporters also held up better than expected and kept the economy moving through a difficult few months.”

Construction’s back, baby!

Construction was the largest upward contributor, rising 2.7% – its biggest quarterly increase since June 2023 – driven by residential building activity. Public administration and safety also contributed, up 2.0%, along with manufacturing, wholesaling and information and telecommunications.

The sectors most impacted by fuel costs went backwards. Transport, postal and warehousing fell 1.7%, while retail trade and accommodation dropped 1.0%. Accommodation and food services fell 3.8%, which Stats NZ said indicated “a potential change in discretionary spending.” Fuel purchasing fell in volumes not seen since Covid, when far fewer of us were driving to work. The data shows the cost of importing petrol increased 63.8% between the March and June quarters. Without the fuel crisis, Stats NZ estimated it would have risen just 5.3%.

Westpac senior economist Michael Gordon told the Herald’s Liam Dann the declines in transport and hospitality “likely reflect the impact of the surge in fuel prices – households have tightened their belts by cutting back on travel in particular.”

What does it all mean?

It may be worth refreshing your memory on what GDP is and isn’t. As Alex Brae wrote in The Bulletin when covering slowing growth in 2019, GDP is “a relatively blunt measurement for the overall health of the economy.” International factors outside New Zealand’s control – in this case, the Middle East conflict and the closure of the Strait of Hormuz – weigh heavily, and results often land close to what economists forecast. Brae also observed, citing Liam Dann, that people tend to “take whatever meaning from these sorts of updates that suits their pre-existing ideas.” That has proven true again this week.

‘Still going backwards’

Labour’s finance spokesperson Barbara Edmonds said New Zealanders were worse off than under the previous government, as reported by Stuff’s Zane Small. “Real GDP was $54,635 per person when Labour left office, it’s now $53,375,” she said. “Nicola Willis can spin herself dizzy, but New Zealanders know the truth: they’re working harder, but still going backwards.”

Act leader David Seymour called the result “good, but we need to go further and faster.” He credited ACT with securing $14bn in savings this term, but said that had “only slowed the debt problem, not stopped it.”

What now?

It was the fourth consecutive quarter of growth, and annual rates were the highest in more than two years. But GDP per capita rose just 0.1% (so taking into account a corresponding rise in population), and disposable income fell 0.4% for the quarter.

Capital Economics’ Abhijit Surya told the Herald the economy was “in slightly better shape than the RBNZ had thought,” leaving “the door open” for a third consecutive rate hike at the October meeting. The Reserve Bank raised the official cash rate to 2.75% last month and signalled further increases to combat inflation at 4%.

Infometrics economist Brad Olsen cautioned that the data is three months old. With global oil prices still above US$100 a barrel, “it’s those pressures the Reserve Bank will probably be focused on more in making their assessment.”

Still… better than nothing!