HSBC Economists Still See 'Growth Upswing' Running into Summer and in 2026

According to economists from HSBC, the New Zealand economy will continue to experience a "growth upswing" during the summer, and by 2026, due to the combined effect of lower interest rates and rising commodity prices, the economy will achieve growth.

In an economic commentary published in response to the unexpected 0.9% decline in the country's gross domestic product (GDP) in the June quarter, Paul Bloxham, the chief economist for Australia and New Zealand at HSBC, and economist Jamie Cullin stated that although the latest GDP data has led them to significantly lower their GDP forecast for 2025 to 0.4% (previously 1.7%), "we expect GDP to recover in the second half of 2025 and in 2026."

"Two key factors are likely to continue to underpin the upswing. One is strong commodity prices, which have seen the terms of trade around a record high and is supporting national incomes.

"The other is lower interest rates, which are expected to support the consumer and business investment. The RBNZ has already delivered 250bp of easing in its cash rate [OCR] so far. Our central case sees another 75bp of easing - a 50bp cut in October, and a 25bp cut in November - taking the RBNZ's cash rate to 2.25%."

In discussing second quarter fall in GDP, the economists said global trade developments and heightened uncertainty may have contributed to firm's delaying investment decisions.

Some temporary local factors also had an impact on the production volume this quarter, such as the energy supply restrictions at the Tivaie Point aluminum plant and the uncertainty regarding the food production time. Additionally, the net migration figure decreased significantly as more and more New Zealanders also moved to Australia to settle there.

"Monetary policy also seems to be transmitting slower than typically previously assumed. Credit growth has accelerated but lower interest rates are yet to support growth or the housing market more broadly," the economists said.

"A delayed rollover of households onto lower fixed mortgage rates, a still-soggy jobs market, and lingering cost and price pressures may be factors here."

Bloxham and Culling said "a key part of the story" is the great depth of the decline that the NZ economy has needed to get itself out of.

"Recall, New Zealand had the largest downturn across the developed economies in 2024. This included a significant housing price correction with price levels still 16% below the November 2021 peak."

They said the second quarter GDP fall 2 would suggest that the 'tough times' New Zealand was facing in 2024 have continued, with the recovery that was seen in the last quarter of 2024 and first quarter of this year "seemingly completely unwound".

"However, this reading may be a little too downbeat. Some of the weakness in the Q2 GDP figures can be put down to statistical issues.

"Statistics New Zealand has had difficulty measuring the economy in recent times. Recall the very large revisions made to GDP in December 2024, where two recessions became just one large one that began in Q2 2024.

"Three quarters on, last week's figures also had big statistical quirks. The numbers showed that the top-down GDP estimate does not match the bottom-up sum, and the gap - a 'balancing item' - has been notably volatile and seasonal. It made a very large negative contribution to Q2 GDP, of around -0.6ppts."

As for the upcoming situation, economists pointed out that the Reserve Bank of New Zealand had previously clearly stated that it expected to cut interest rates by 50 basis points as part of its own interest rate adjustment plan.

"...And we think the sharp downside surprise on Q2 GDP means more spare capacity in the economy than the central bank had expected, and will be enough to get the committee to deliver an outsized [50 bps] October cut.

"The November [RBNZ OCR] meeting outcome will hinge more on the forthcoming Q3 jobs and inflation data, but we expect a pathway of 'least regrets' to justify a cut, particularly given the unusually large gap in meetings over the summer months."

The economists say, however, the Government also has a part to play with its fiscal policy.  

"Fiscal policymakers have been looking to consolidate after the large pandemic-era spending, and this makes some sense," the economists said.

"However, the primary goal ought to be aiming for New Zealand to be 'open for business' and to be attractive for local and global investment. If fiscal policymakers can help create an environment where the private sector can thrive, this would help to underpin a strong growth pathway."

Former National Party Finance Minister Ruth Richardson had in fact last week said "a course correction" is urgently needed by this Government and she said the best way to do it is "a Spring Statement to correct the fiscal path, get spending under control and give the private sector room to grow again".  Interest.co.nz's Dan Brunskill had this to say about that idea.