New Zealand’s big bank economists have spent the past week lifting their forecasts for the June quarter, and all five now expect Thursday’s GDP figures from Stats NZ to show the economy grew through the worst of the fuel price shock. The growth they expect is tiny, but it is growth.
That is a turnaround. Three of the five had been picking a contraction. Westpac had pencilled in a 0.1 percent fall in GDP for the three months to June, and BNZ and ANZ had each forecast a 0.2 percent fall. According to a round-up of bank forecasts published by interest.co.nz on Sunday, Westpac and BNZ now expect growth of 0.2 percent, ANZ and Kiwibank 0.1 percent, and ASB 0.3 percent.
The Reserve Bank is more cautious. In its September Monetary Policy Statement, released on 2 September alongside a rise in the Official Cash Rate to 2.75 percent, the bank assumed GDP growth was flat in the June quarter. It also assumed the knock-on effects of the Middle East conflict, through higher fuel prices, lower real incomes and greater uncertainty, left June quarter GDP about 0.6 percent lower than it would otherwise have been. Put simply, the Reserve Bank’s own working implies the economy would have grown by something like 0.6 percent in the quarter without the oil shock.
What changed the banks’ minds was a run of hard data. On 4 September Stats NZ reported that the volume of building work put in place rose 4.8 percent in the June quarter, after adjusting for seasonal patterns and construction cost inflation. Then on Tuesday 8 September came Stats NZ’s business financial data for the June 2026 quarter, which covers manufacturing, wholesale trade and a range of service industries. Stats NZ uses these surveys to build the production side of GDP, so economists read them closely in the week before the headline number.
BNZ senior economist Doug Steel wrote the same day that the data showed manufacturing sales volumes rose 0.8 percent on the March quarter, and that after allowing for changes in stock levels he estimated manufacturing’s contribution to GDP grew around 0.6 percent. “Within manufacturing, there looks to have been strong gains in food processing, including dairy and meat, wood and paper products, non-metallic mineral products, and transport and machinery equipment,” he wrote. “These more than offset weakness in textiles, printing, metals, chemicals, and furniture manufacturing.”
Wholesale trade is where the fuel shock makes the numbers tricky to read. Stats NZ reported that the seasonally adjusted value of wholesale trade sales rose 6.4 percent, or $2.7 billion, in the June quarter, following a 3.8 percent rise in the March quarter. Most of that came from one corner of the industry. Sales by basic material wholesalers rose 18 percent, or $2.2 billion, and Stats NZ said the rise was influenced by prices for petroleum products such as diesel, petrol, aviation fuel and lubricants. That one group accounts for roughly four-fifths of the entire increase in wholesale sales.
This is where the maths matters. GDP is meant to measure how much the economy produces, not how many dollars change hands. When the price of diesel jumps, a fuel wholesaler can move exactly the same number of litres and still report much bigger sales. To get from dollars to volumes, Stats NZ divides sales values by a price index for the industry, a process economists call deflating. Westpac senior economist Michael Gordon told interest.co.nz that wholesale trade lifted nearly 3 percent in volume terms in the quarter. If sales values rose 6.4 percent and volumes rose nearly 3 percent, prices for what wholesalers sold must have risen by somewhere between 3 and 4 percent, because 1.064 divided by 1.03 is about 1.033.
That still left volumes stronger than BNZ expected. “Nominal sales were always going to be strong given a significant, fuel-driven, lift in prices,” Steel wrote. He said the size of the sales gain implied a larger lift in wholesale volumes, and in the industry’s contribution to GDP, than the bank had pencilled in.
The clearest example of prices and volumes pulling in opposite directions came from the retail trade survey Stats NZ released on 24 August. In seasonally adjusted terms, fuel retailing sales values rose 12 percent, or $299 million, on the March quarter, while fuel retailing sales volumes fell 13 percent. Newswire’s calculation from those two figures is that average prices at fuel retailers were close to 29 percent higher than in the March quarter, because 1.12 divided by 0.87 is about 1.29. Motorists spent more money and bought less. The figure is approximate because both inputs are rounded, and fuel retailers sell more than fuel, but the direction is not in doubt.
That is why the household side of the economy is the part economists are worried about. Total seasonally adjusted retail sales volumes fell 0.5 percent in the June quarter, and eight of the 15 retail industries sold less than in the March quarter. “In contrast, there are question marks around consumer-focused sectors like retail trade,” Steel wrote. Kiwibank economist Elliott Lowe told interest.co.nz that consumer spending makes up around half of GDP, so weakness there would weigh on the headline figure. “Overall, we are looking to the GDP data with a sense of inevitability that the result won’t be great,” Lowe said. “But while economic growth may be reduced to embers for the June quarter, we think we are already seeing signs of a spark that should lead to better times ahead.”
The growth the banks are expecting comes mostly from farms, factories, building sites and exporters, the parts of the economy earning strong prices overseas. Newswire reported earlier this month that export prices rose in the June quarter even as fuel import costs dragged the terms of trade down. ASB economist Wesley Tanuvasa, whose bank has the highest forecast at 0.3 percent, expects growth in the quarter to be concentrated in primary and goods-producing sectors. “Ironically, these sectors are more fuel-intensive,” he told interest.co.nz. “However, robust global demand for our exports and the construction sector coming off a low base should help offset this.”
Westpac’s Gordon put the change in mood this way. “While hardly a blockbuster result, that’s a lot better than we hoped for in the early stages of the US-Iran conflict, when we were staring down the barrel of what could have been the biggest global energy shock in history,” he said. Brent crude, the global oil benchmark, peaked at US$126.41 a barrel at the end of April and was back at US$108 a barrel on Friday, according to figures cited by interest.co.nz, so the shock is not over.
Readers should treat the quarterly number with some care. The forecasts are all within a few tenths of a percent of zero, and small differences of that size can be wiped out when Stats NZ revises earlier quarters, which it routinely does. Steel noted that significant revisions are expected on Thursday and suggested the annual growth rate may be a better guide than the quarterly one. BNZ is picking growth of 2.4 percent on the June quarter a year earlier, which it notes would be a touch firmer than the 2.1 percent projected by the Reserve Bank. The Reserve Bank also assumes a leftover seasonal pattern in the GDP data will shave about 0.2 percentage points off June quarter growth, which is one reason a weak-looking number may not mean as much as it seems.
The result matters for mortgage holders as well as economists. After the Reserve Bank’s September rate rise, which banks passed straight on to mortgage rates, BNZ expects the Official Cash Rate to be held at the October review before rises resume in December, but says October remains a live meeting. “The forecast upside growth surprise to the Bank doesn’t look much, but it could well be enough to keep it moving on rates, especially if forward indicators suggest momentum is sustainably positive and adds upside risk to projected inflation over the medium term,” Steel wrote. Before that October decision come the NZIER quarterly survey of business opinion on 6 October and September quarter inflation figures on 22 October.
Stats NZ publishes the June quarter GDP figures on Thursday 17 September. If the banks are right, New Zealand will have come through the fuel price spike with its economy a little bigger than before, even though households have had a hard quarter.
Does it feel like the economy grew where you live and work, or does it still feel like a recession? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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