New Zealand Residential Building Gain Signals Economic Growth

New Zealand residential building rebounded in the third quarter, adding to signs the economy is recovering in response to central bank stimulus.

The volume of residential building work rose 2.8% from the second quarter, when it declined 3.3%, Statistics New Zealand said Thursday in Wellington. Volumes are edging higher from a four-year low seen in the final three months of 2024.

A lift in construction follows a pick up in third-quarter retail sales and exports, suggesting gross domestic product is recovering after a 0.9% contraction in the second quarter. The Reserve Bank forecasts GDP growth of 1.1% in the six months through December and 2.9% in 2026.

Local economists are slightly more upbeat that the RBNZ but won’t finalize their forecasts until more partial indicators are released. The GDP report for the third quarter is due on Dec. 18.

Construction has been slow to recover from a sharp downturn in 2024 when the economy slumped into recession. A stagnating housing market has hampered demand for new homes but the impact of lower borrowing costs is helping. Third-quarter building approvals neared a three-year high.

Still, slow immigration and housing over-supply may curb the pace of the rebound.

“Although low interest rates are supporting new development, population growth remains low and there have been sizable increases in the housing stock over the past few years,” said Satish Ranchhod, senior economist at Westpac in Auckland. “Those factors are still weighing on house-price growth and will also be a dampener on the pace of home building.”

The RBNZ has lowered the Official Cash Rate by 325 basis points since July last year to 2.25% — a level policymakers say is stimulatory — and has signaled the benchmark could stay at that level through 2026.

A report this week showed goods export volumes rose 3.4% in the third quarter while imports declined, suggesting net exports will add to growth. Separately, retail sales rose 1.9% in the period — more than three times the pace expected.

Today’s report showed non-residential building fell 1.3% from the second quarter — the fifth straight decline — while total construction increased 1.5%.