The figure was more than double expectations, with markets predicting an average of a 0.9 percent growth and the Reserve Bank of New Zealand (RBNZ) forecasting 0.8 percent. This was driven by the services industry, which makes up two-thirds of the economy.
It follows an increase of 1.9 percent during the previous June quarter.
“With borders opening to all visitors in the September 2022 quarter, we have seen more spending on both international and domestic air travel,” Stats NZ manager Ruvani Ratnayake said.
“The business services industry also contributed to the result, driven by computer system services, recruitment services, and travel agency and tour arrangement services.”
Ratnayake noted that falls in central government expenditure and household consumption offset some of the increases.
Finance Minister Grant Robertson said the economy continued to grow as an increasing number of tourists returned and government fiscal policies were reducing inflationary pressures.
“This is another solid result and shows the strength of the economy despite a challenging global situation marked by high inflation and the effects of the Ukraine war and ongoing disruptions from the pandemic,” he said.
“The latest economic indicators suggest the momentum has continued into the December quarter. There are signs, however, that activity will slow from there.”
New Zealand’s economy expanded to $375 billion (US$240 billion), and economic activity was 6.4 percent higher compared to the same period last year.
“The economy’s resilience stands us in good stead in a volatile economic environment with a period of high inflation to be followed by forecasts of a shallow recession,” Robertson said.
New Zealand to Go Into Recession
The RBNZ previously admitted it was deliberately engineering a recession and slowing aggregate economic spending to stamp out inflation faster.“The quicker inflation expectations come down, the less work we need to do and the less likely it is that we have a prolonged period of low or negative growth,” RBNZ Governor Adrian Orr told the Finance and Expenditure Committee in November.
He warned New Zealanders to brace for a “shallow and short” period of negative GDP growth.
“What we are looking at is a 1 percent of GDP slow down over the period of three to four quarters in the second half of next year into 2024,” he said.
The remarks came after the bank raised the official cash rate by a record 0.75 percentage points to 4.25 percent.
Economists at the Financial Services Council conference in September also said unemployment would need to reach 5 percent, from the current 3.3 percent, for the RBNZ to rein in inflation.
However, ANZ senior economist Miles Workman believes the RBNZ will place little importance on this data set when assessing appropriate monetary conditions.
“The data are noisy, pre-date the hawkish November monetary policy statement, and may not be providing a very good steer on underlying economic momentum given the travel-related normalisation underway,” he said.
Workman noted that while the data was strong, it didn’t change the fact that the domestic economy was on a “softening trajectory” as the housing market slowed, interest rates rose, and the labour market loosened towards sustainable levels.
“Today’s data won’t change the RBNZ’s assessment that a recession in 2023 is the likely cost of getting on top of the wage-price spiral that is fuelling core inflation,” he said.
