New Zealand’s latest GDP growth rate YoY for September 2025, as reported by the Sigmanomics database, remained at -0.60%. This figure matches the previous quarter’s contraction and continues a downward trend that began in late 2023. The persistent negative growth contrasts sharply with the 2.20% expansion recorded in mid-2023, highlighting a significant slowdown in economic momentum.

Drivers this month

• Weak consumer spending amid high inflation and rising interest rates.
• Declining export volumes due to softer global demand and supply chain disruptions.
• Reduced investment in construction and manufacturing sectors.

Policy pulse

The Reserve Bank of New Zealand (RBNZ) has maintained a tight monetary stance, with the Official Cash Rate (OCR) steady at 5.50%, aiming to curb inflation that remains above the 2% target. Fiscal policy remains cautious, with government budget deficits narrowing but no major stimulus planned.

Market lens

Financial markets showed muted reaction to the GDP print. The NZD/USD pair traded flat within 0.67-0.68 range post-release. Two-year government bond yields edged slightly lower by 3 basis points, reflecting cautious investor sentiment. Breakeven inflation rates held steady near 2.30%, signaling stable inflation expectations.

Core macroeconomic indicators provide context for the GDP contraction. Inflation remains elevated at 4.10% YoY as of August 2025, down from a peak of 7.30% in early 2024 but still above target. Unemployment stands at 4.50%, slightly higher than the 4.20% recorded a year ago, indicating softening labor market conditions.

Monetary policy & financial conditions

The RBNZ’s tightening cycle since mid-2023 has increased borrowing costs, dampening credit growth. Household debt-to-income ratios remain high at 170%, constraining consumer spending. Mortgage rates averaged 6.80% in September 2025, up from 5.20% a year prior.

Fiscal policy & government budget

The government’s fiscal deficit narrowed to 2.10% of GDP in FY2024/25, down from 3.50% in FY2023/24. Spending focuses on infrastructure and social welfare but avoids aggressive stimulus. Tax revenues have been pressured by slower economic activity.

Sectoral contributions reveal that household consumption subtracted 0.30 percentage points from growth, while net exports contributed a marginal 0.10 points. Investment remained a drag, subtracting 0.40 points, reflecting subdued business confidence.

Market lens

Immediate reaction: NZD/USD remained steady near 0.68 post-release, while NZ 2-year yields dipped 3 basis points, reflecting cautious optimism amid persistent contraction.

Looking ahead, New Zealand’s growth outlook is clouded by mixed signals. The base case scenario, with a 55% probability, forecasts slow stabilization with GDP growth hovering near zero by mid-2026 as inflation eases and monetary policy normalizes.

Bullish scenario (20% probability)

• Global demand recovers sharply, boosting exports.
• Inflation falls faster than expected, allowing RBNZ to ease policy.
• Domestic investment rebounds, supported by fiscal infrastructure spending.

Bearish scenario (25% probability)

• Prolonged global trade tensions depress exports further.
• Inflation remains sticky, forcing continued monetary tightening.
• Housing market weakness deepens, dragging consumption lower.

Structural & long-run trends

Demographic shifts, including an aging population, and productivity growth challenges weigh on New Zealand’s potential output. These factors suggest that even in recovery, growth may remain below historical averages of 2-3% annually.

New Zealand’s GDP growth rate YoY remains in contraction territory, reflecting a complex interplay of domestic and external headwinds. Monetary tightening and cautious fiscal policy have restrained demand, while global uncertainties continue to cloud the outlook. Structural challenges limit upside potential, underscoring the need for targeted reforms to boost productivity and labor participation.

Financial markets have priced in this cautious outlook, with the NZD and bond yields showing limited volatility post-release. Investors and policymakers will closely monitor inflation trends and global developments for signs of a sustainable recovery.