New Zealand: Q2 GDP surprises to the upside – UOB

GDP rose by 0.9% q/q in 2Q23, surpassing expectations for a reading of 0.4% q/q. 1Q23 GDP was revised to unchanged from a 0.1% q/q contraction, meaning the economy did not shrink for two straight quarters and narrowly avoided a recession. Compared to the same period one year ago, GDP rose by 1.8% y/y. This follows a 2.2% y/y print in 1Q23, more than expectations of 1.2% y/y

Overall, we are cautioning against reading too much into today’s GDP report as it is difficult to ascertain how much of upside is noise-driven from the rebound due to the cyclone disruption. Our view is that the economy is likely to experience further weakness ahead, despite unemployment remaining close to record-lows of 3.4%. We have, nonetheless revised our growth forecast for 2023 to 0.9%, from 0.7% previously. 

There is a risk that the Reserve Bank of New Zealand (RBNZ) may raise its official cash rate (OCR) once more by 25bps. But we think the RBNZ will opt to pause in Oct, and will likely wait till the 29 Nov monetary policy meeting, with the benefit of having the 2Q23 CPI figures (17 Oct). We will hence be waiting for 2Q23 CPI figures next month, before making any changes to our OCR forecasts.