By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s economy likely crept out of recession in the fourth quarter but the overall growth impulse still remains weak, clearing the way for the central bank to continue cutting interest rates to boost demand and confidence.

Gross domestic product (GDP) is forecast to have risen 0.4% in the three months ended December, a touch above the Reserve Bank of New Zealand’s (RBNZ) projection of 0.3% growth, according to a Reuters poll of 17 economists.

That would provide some welcome relief to policymakers keen to put the economy back on a solid footing after it sank into a technical recession in the September quarter when it contracted by 1.0% on top of a 1.1% slump in the second quarter. The two-quarter GDP decline was the worst outside of the pandemic since the sharp downturn of 1991.

Kiwibank economists, who are forecasting 0.3% growth, said while this would be an improvement “the rebound is rather muted and reflects the ongoing weakness in the economy.”

Analysts also note that U.S. President Donald Trump’s policies, led by ramped-up tariffs against major trading partners, have raised broader growth risks globally.

That could impact New Zealand as it exports heavily to China, one of the big targets of Trump’s tariffs.

The South Pacific nation’s economy is expected to have benefited from tourism-exposed sectors such as retailing, hospitality and transport, while utilities are also likely to have experienced a rebound.

However, several sectors continue to struggle, backing market expectations for more monetary stimulus.

Westpac senior economist Michael Gordon said the improvement might also be due to technical issues in how GDP is calculated and recommended focusing on the annual rate of change rather than the quarterly one.

The Reuters poll sees the economy contracting by 1.4% on year.

New Zealand’s central bank has cut the official cash rate by 175 basis points since August 2024 to 3.75% and in February foreshadowed two further 25-basis-point cuts in April and May.

“It’s unlikely the GDP data will challenge that guidance, given these data are very much ancient history, other indicators for the output gap in the fourth quarter remain negative,” said ANZ economists Sharon Zollner and Henry Russell in a note.

“The economy continues to operate with significant spare capacity, meaning there’s plenty of scope for the economy to grow in the near term without threatening domestic disinflation progress,” they added.

Moreover, since the GDP data is months-old the central bank has noted it is increasing the use of higher frequency indicators to better understand the economy.

(Reporting by Lucy Craymer; Editing by Shri Navaratnam)

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