NZ: Concerns about Economic Slowdown and Accelerating Inflation

■ While New Zealand's real GDP for the October-December quarter of 2025 achieved positive growth for two consecutive quarters, the pace slowed significantly, and concerns remain about the outlook.  

■ The Reserve Bank of New Zealand has not ruled out the possibility of interest rate hikes or cuts, and the CPI for the January-March quarter will be key in determining the direction of monetary policy. 
 
On the 19th, Statistics New Zealand released data showing that real GDP for the October-December quarter of 2025 grew at an annualized rate of 1.0% quarter-on-quarter, achieving positive growth for two consecutive quarters. However, compared with the previous quarter (an annualized growth of 3.5%), the growth rate slowed significantly. Not only were private demand factors such as personal consumption (down 0.4% quarter-on-quarter) and equipment investment (down 2.1% quarter-on-quarter) weak, but net exports also declined by 1.5%, dragging down economic growth. The latest data shows that the trade balance showed a deficit of NZ$850 million in February, which further widened compared to the previous month (NZ$340 million) due to a decline in exports of dairy products and other goods. As New Zealand's main export destination, China is tolerating a short-term economic slowdown to promote economic restructuring, which also means uncertainty remains about New Zealand's economic prospects. 

 
The Reserve Bank of New Zealand (RBNZ) kept its policy rate unchanged at 2.25% at its Monetary Policy Committee meeting on February 18, marking the fourth consecutive meeting. The Consumer Price Index (CPI) rose 3.1% year-on-year in the October-December quarter of last year, above the central bank's target range (1-3%). The quarterly monetary policy report suggested a potentially slower pace of interest rate hikes and predicted the policy rate would reach 2.38% in the October-December quarter of 2026. Against the backdrop of a deteriorating and potentially protracted situation in the Middle East since February 28, particularly with the emerging shortage of local light diesel fuel, the New Zealand government appears to be considering diversifying its import sources to address fuel supply constraints. Given the country's high energy dependence, supply and demand will be tightest during the winter months of May and June, and the market is also concerned about the risk of stagflation amid accelerating inflation. 

 
RBNZ Governor Breman stated on the 24th that temporary increases in energy prices are negligible for monetary policy, but if inflation shows signs of stabilizing, interest rate hikes may be necessary. At its February meeting before the outbreak of the Middle East conflict, the central bank believed that monetary policy would remain accommodative in the short term, but also noted that "given global uncertainty, neither rate hikes nor rate cuts can be ruled out." Short-term financial markets expect the RBNZ to maintain its policy rate at 2.25% at its April 8th Monetary Policy Committee meeting with a probability of nearly 90%, but the probability of a 0.25 percentage point rate hike at the May 27th meeting has reached 50%. The January-March quarterly CPI data released on April 21st is expected to be an important indicator of future policy direction.