New Zealand's economy expanded by 0.8% in the first quarter of 2026, a significantly stronger result than the 0.2% growth observed in the fourth quarter of 2025. This growth exceeded the median forecast of 0.6% by economists and the Reserve Bank of New Zealand's projection of 0.4%, indicating the economy was gaining momentum prior to the Middle East conflict. The annual growth rate reached 1.2%, marking the fastest pace in two years. However, the economy still faces challenges, as it remains smaller in real terms than it was in mid-2024. A "balancing item" in the GDP calculation artificially boosted the reported growth by about 0.4 percentage points, meaning the true underlying growth was closer to 0.4%.
The strong first-quarter performance was driven by an increase in retail trade, which rose by 1.7%, and an 0.8% expansion in the manufacturing sector. Tourism also contributed positively, with accommodation and food services growing by 1.1%. Additionally, agriculture saw a 1.2% rise in output. Conversely, residential construction experienced a decline of 1.4%, and the transport, postal, and warehousing sector contracted by 0.1%. Despite the overall positive data, economists from Westpac noted that seasonal distortions overstated the actual growth.
The improved economic activity before the Iran War led to a slight uptick in the New Zealand dollar, which rose by 0.2% to $0.6277 after the data release. Bond yields also increased. However, the conflict in the Middle East, particularly the rising oil prices, is expected to stifle this momentum. The Treasury has projected that the Middle East conflict will reduce economic growth by approximately 0.7 percentage points. Analysts, including Sharon Zollner of ANZ Bank New Zealand, suggest that the robust first-quarter GDP might lead the Reserve Bank to maintain a hawkish stance for a longer period, given the ongoing inflation concerns.
