Economy records best reading since Q2 2023 in the fourth quarter

GDP reading: GDP increased 0.6% on a seasonally adjusted quarter on quarter basis in the fourth quarter, above the 1.1% contraction tallied in the third quarter and marking the best result since Q2 2023. Q4’s reading was stronger than markets expected. In the period, the economy was likely supported by improved consumer and business sentiment plus falling inflation and interest rates. On an annual basis, GDP dropped 1.1% in Q4, following the previous period's 1.6% fall.

Broad-based upturn: The quarter-on-quarter upturn reflected improvements in private consumption, public spending, fixed investment and exports. Private consumption grew 0.1% seasonally-adjusted quarter-on-quarter in Q4 (Q3: -0.3% s.a. qoq). Government spending rebounded 1.9% in Q4 (Q3: -2.1% s.a. qoq). Meanwhile, fixed investment rose 0.1% in Q4, contrasting the 2.5% decrease recorded in the previous quarter. On the external front, exports of goods and services growth hit an over one-year high of 3.5% (Q3: -1.8% s.a. qoq). In addition, imports of goods and services were up 1.1% in Q4 (Q3: 0.0% s.a. qoq).

Further expansion ahead: Our Consensus is for a similar growth rate to Q4 in Q1 2025, with looser financial conditions continuing to benefit the economy.

Panelist insight: On the reading and outlook, ANZ analysts said: “While the underlying details were on the stronger side of expectations, it would be a stretch to describe the release as strong. We’d call this the economy bouncing off the bottom. It’s important to remember that the expansion in Q4 followed two quarters of sharp contraction, meaning the level of activity remains well into disinflationary territory. Indeed, given the starting point, we think there’s plenty of scope for the economy to grow quickly in the near term without adding upwards pressure to inflation. […] Our forecasts reflect a cyclical recovery in domestic demand and near-term support from net exports as export growth outpaces import demand. While the recovery is expected to be gradual at first, momentum is expected to build over the year, driven by lower interest rates, improving terms of trade and a weaker NZD.”

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