By Lucy Craymer
WELLINGTON, March 19 (Reuters) – New Zealand’s economy posted a modest gain in the fourth quarter, below analyst expectations, leading to a drop in the New Zealand dollar as markets saw more breathing room for the central bank.
Official data out on Thursday showed gross domestic product rose 0.2% in the fourth quarter on the prior quarter, but was weaker than analysts’ forecast of 0.4% and the Reserve Bank of New Zealand’s forecast of a 0.5% rise.
Annual GDP increased 1.3%, Statistics New Zealand data showed. The market had expected a 1.7% increase.
It followed a downwardly revised annual increase of 1.1% in the third quarter.
The New Zealand dollar fell to $0.5787 following the data, down around 1.3% from Wednesday’s high, as markets assessed that it would not provide any strong drivers for the central bank to increase the official cash rate.
“At the margin, weaker-than-expected GDP gives them a little more latitude to look through the near-term inflationary impact of the oil shock and focus on the potential medium-term implications,” ANZ senior economist Matthew Galt said.
Growth in New Zealand’s economy has started to show early signs of an improvement after an extended period of weak activity but there remains plenty of spare capacity.
The country’s central bank, which has cut the official cash rate by 325 basis points since August 2024, opted to keep rates unchanged at 2.25% in February as it noted the economic recovery remained in the early stages and that growth was broadening.
The GDP data supports the central bank’s decision to hold, particularly as it predates the beginning of the Israeli-U.S. war on Iran and the resulting spike in oil prices.
“GDP is dated at the best of times, but a lot has changed since Q4 2025. The war in the Middle East has cast a large shadow of doubt over the growth outlook for 2026,” said ASB Senior Economist Kim Mundy in a note.
He added that with medium-term inflation risks skewed to the upside and economic growth looking to be weaker than it would have been in the absence of conflict, the RBNZ is going to find itself “in an increasingly uncomfortable spot”.
Statistics New Zealand said rental, hiring, and real estate services was the largest contributor to the overall increase in GDP, up 0.8% in the quarter, while construction was the largest downward contributor to GDP this quarter, down 1.4%.
(Reporting by Lucy Craymer; Editing by Stephen Coates)
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