New Zealand’s economy contracted far more than expected in Q2, with GDP falling -0.9% qoq against consensus forecasts of -0.3% qoq. The release confirmed a deeper downturn, with economic activity now having declined in three of the last five quarters. The breadth of weakness points to rising headwinds that could force the RBNZ into a more aggressive easing cycle.
Goods-producing industries led the contraction with a -2.3% drop, while primary industries fell -0.7% and services output was flat. “The 0.9 percent fall in economic activity in the June 2025 quarter was broad-based with falls in 10 out of 16 industries,” said economic growth spokesperson Jason Attewell. Manufacturing was the single largest drag, contracting -3.5% in the quarter, while construction fell -1.8% following a modest rebound in Q1.
The scale of contraction triggered a wave of forecasts for deeper RBNZ easing. Westpac now expects a 50bp cut in October followed by a further 25bp reduction in November, compared with earlier projections of 25bp moves at both meetings. That would lower the OCR from the current 3.00% to 2.25% by year-end.
New Zealand Dollar responded by being sold off deeply after the release. Technically, immediate focus is now on 0.5913 support in NZD/USD with today’s sharp fall. Firm break there will indicate that rebound from 0.5799 has completed as a corrective move to 0.6006. More importantly, that would argue that the decline from 0.6119 is not over yet, and would extend to 61.8% retracement of 0.5484 to 0.6119 at 0.57527 on resumption.
