Economy rebounds into 1.1 percent growth for September quarter

• Economy grows 1.1% in September quarter, 1.3% on year ago
• Expectations were for a rise between 0.8-1.0%
• Previous quarter revised lower to 1 pct contraction from 0.9%
• Business services, manufacturing, construction lead growth
• Telecommunications/media, education sectors contract
• Data likely to back Reserve Bank holding cash rate at 2.25 pct for start of 2026.

The economy has rebounded from its mid-year slump as stronger manufacturing, construction, and business services pushed growth, backing the case for interest rates to be held steady.

Stats NZ data showed gross domestic product (GDP) - the broad measure of economic growth - rose 1.1 percent in the three months ended September, to be 1.4 percent higher than a year ago.

Expectations were for quarterly growth of about 0.9 percent, although the contraction in the previous quarter was revised lower to 1.0 percent from 0.9 percent.

"The 1.1 percent rise in economic activity ... was broad-based, with increases in 14 out of 16 industries," Stats NZ spokesperson Jason Attewell said, adding the economy had grown in three of the four past quarters.

Turning the economic corner

The strongest sectors were manufacturing and business services such as professional and technical, which both grew 2.2 percent, and construction rising 1.7 percent.

Exports were up 3.3 percent, on the back of strong dairy and meat performances, but households' activity rose 0.1 percent.

There were smaller positive contributions from real estate services, retail, and energy and water industries.

The sectors to contract were telecommunications and internet services, and education and training.

Individual shares of the economy - per capita GDP - rose 0.9 percent,.

The country's purchasing power (disposable income) improved 0.7 percent for the quarter.

Slow recovery

The latest GDP reading has already been overtaken by more recent data with the monthly surveys of the manufacturing and services showing they have been going backwards, despite positive sentiment surveys.

Retail sales have been improving, the GDP data showed increased demand for televisions, computers, and mobile phones.

"The retail trade survey shows increased spending on durables in the September quarter, with motor vehicle parts retailing up 7.2 percent, and electrical and electronic goods up 9.8 percent," Attewell said.

However, consumer sentiment has remained pessimistic, with households concerned about the weak labour market and the continued high cost of living, while lower interest rates have been slow to filter through.

Forecasts are for a gradual pick up in growth next year to around 1.5 percent, rising towards 3 percent in 2027.

Rates on hold

The Reserve Bank last month cut the official cash rate (OCR) by 25 basis points to 2.25 and signalled it was likely the end of the rate cutting cycle, although it left the door ajar for further easing if the economic numbers turn sour.

That message has been reinforced by the new Governor, Anna Breman, over the past week who has said financial markets are getting ahead of themselves by starting to price in RBNZ rate rises next year.

Economists expect the economy to post stronger growth, which might underpin inflation pressures, although they believe there is sufficient slack in the economy to counter inflation.

New Zealand's quarterly growth rate matched China's 1.1 percent, but outpaced most of our main trading partners, with Australia and the EU at 0.4 percent, Canada at 0.6 percent, and UK at 0.1 percent.

'Better times are ahead' - Willis

The Finance Minister said the figures showed broad-based growth in the economy after a difficult period.

Nicola Willis said she took heart from the fact there was growth in job-rich sectors like manufacturing and construction.

"What New Zealanders going into Christmas should take from this is your hard work is paying off. Growth is here, better times are ahead," she said.

"Today's data gives us real reason for optimism, and I fully accept that data is not what makes people necessarily feel better, but in this data we can see that some people obviously are feeling better."

Willis said the strong growth in job-rich sectors would lead to job creation and higher wages.

"My message has been, I get it. It's hard. Let's keep working. We are doing the right things to make sure the future is better. And so this data gives me confidence that that message is bearing fruit, that it is true, that it is real, and that businesses, firms, investors, are responding to what are fundamentally good economic conditions in New Zealand."

Labour said the figures showed the government had not grown the economy since it was elected, as GDP had fallen 0.5 percent over the year ended September 2025 compared to the year ended September 2024.

Labour's finance spokesperson Barbara Edmonds said the quarterly figures were good news for retailers going into Christmas, but families continued to do it tough.

"What really matters is whether families feel better off, and they're heading into a tough Christmas after a tough year. They promised to make things better and things are worse."

Willis said those were two different data sets, and the economy was 1.3 percent bigger in the September quarter of this year compared with the September quarter last year.

"There are different ways of measuring the economy, but what matters is the size of the economy overall. The size of the pie is bigger," Willis said.

But Edmonds dismissed that.

"The data doesn't lie, and it showed that the economy, ultimately, over the last year, has not grown. They said this year was the year of growth, and it has been no growth," Edmonds said.

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