WELLINGTON: New Zealand's economy picked up slightly in the first quarter, led by the manufacturing sector, although the impact of the Middle East war since then is likely to remain key for policymaker decisions.
Official data out on Thursday showed gross domestic product (GDP) rose 0.8% in the first quarter from the prior quarter, in line with analysts' forecast.
GDP increased 1.5% year-on-year, Statistics New Zealand data showed. The market had expected annual growth of 1.1%. It followed an upwardly revised quarterly 0.5% increase in the fourth quarter from the previously reported 0.2% increase.
Nine out of 16 industries recorded an increase in economic activity in the March quarter, Statistics New Zealand said.
Westpac Senior Economist Michael Gordon said while on-year growth was slightly better than expected, the focus for the central bank will more likely be on developments since March.
He noted the Reserve Bank of New Zealand (RBNZ) will likely look at "what impact the spike in fuel prices has had on activity, what the subsequent pullback in oil prices will mean for the persistence of inflation pressures and of course whether the peace agreement can reasonably be expected to hold."
The New Zealand dollar was little changed following the data while markets continue to price in an 80% chance that the central bank will hike its official cash rate at the next meeting.
The RBNZ has cut the official cash rate by 325 basis points since August 2024 and has held it at 2.25% since November last year.
New Zealand's economy is showing early signs of recovery after a prolonged period of weakness. However, subdued net migration, a cooling housing market and tight fiscal policy continue to weigh on growth, while the Middle East conflict presents new downside risks.
Unemployment is another major pressure point on the economy, with the nation's jobless rate hovering at a decade-high, hitting confidence and dampening household spending.
Both the central bank and the Treasury expect second-quarter growth to have been hit by the U.S.-Israeli war with Iran, as soaring oil prices and persistent uncertainty weigh on the outlook.
Trade-reliant New Zealand, like many of its peers globally, is grappling with supply disruptions and an energy shock linked to the Iran war, as policymakers weigh near-term, supply-driven inflation against longer-term risks of second-round price pressures.
These concerns have pushed the RBNZ to signal imminent rate hikes, with inflation at 3.1%, still above its 1%-3% target band. - Reuters
