Signs of life
New Zealand’s manufacturing sector showed increased expansion during October, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for October was 51.4 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 1.3 points higher than September, but still below the average of 52.4 since the survey began.
BusinessNZ’s Director of Advocacy, Catherine Beard, said that after two months of flatlining activity in the sector, at least October showed more signs of life.
"Four of the five sub-index values were in expansion during October, lead by kew Orders (54.9), which showed its highest level of expansion since August 2022. This was followed by Production (52.0) and Finished Stocks (51.3). In contrast, Employment (48.1) remained in contraction, which has now been the case for six consecutive months".
The proportion of negative comments from respondents stood at 54.1% for October, down from 60.2% in September and 58.1% in August.
Manufacturers reported a lift in orders and improved demand, helped by seasonal activity, new customers/products, and signs of economic confidence returning. Many also noted better efficiency and productivity, with process improvements and automation supporting stronger sales and output.
BNZ’s Senior Economist Doug Steel said that "the lift to 51.4 from September’s 50.1 isn’t large, but it has moved the right way. The October result sees the PMI now boasting four consecutive months above the breakeven 50 mark for the second time in three years".
Another turning point?
Today’s labour market data broadly confirmed our view of the world. Namely, that the deterioration in the labour market is reaching its end but that it will be quite some time before any sort of buoyancy returns.
The problem for those looking for work is that the labour market lags the real economy. Only now is the economy starting to show the first signs of life. But it will be a while before employers are confident enough to take on more staff especially, when in many cases, the staff that are already employed are underutilised.
Business optimism elevated
ANZ’s business opinion survey continues to foretell a marked improvement in economic activity. It’s been doing so for over a year now. We are comfortable with our view that activity will soon turn the corner but we can’t help but think the initial pace of the expansion will disappoint many. Consistent with the ANZ survey, we do believe annual GDP growth can climb to around 3.0% but that’s likely to be towards the tail end of 2026 rather than any time soon.
Shaking off the sideways trend
SEEK job ads are showing further signs of life. Across the September quarter, ads lifted 2.8% q/q. With each passing month, an upturn in the trend becomes more compelling. It is important to remember that the level of job ads is still almost 50% below the 2022 peak. But it is another sign the worst for employment may be behind us.
Annual CPI expected to peak in Q3
Broadly speaking, today’s selected prices for September support our view that annual CPI peaked in Q3 and will ease in Q4. The monthly prices were a touch on the softer side relative to our priors and set a lower base going into Q4. It provides early evidence that the current bout of inflation is slowly starting to unwind. This should help ease some concerns around inflation persistence, with RBNZ Chief Economist Conway noting yesterday it is nerve wracking with CPI close to the top of the target band.
Headwinds Continue
The services sector in New Zealand remains mired in contraction, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for September was 48.3 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). While this was 0.7 points higher than August, the sector has now been in ongoing contraction for 19 consecutive months. The September result was also still well below the average of 52.9 over the history of the survey.
BusinessNZ's CEO, Katherine Rich said that it was a case of a different month but the same story for the sector. For the sub-index results, Activity/Sales (47.8) and New Orders/Business (49.6) did pick up from August, but still remained in contraction. Employment (47.8) experienced increased contraction, while Stocks (50.6) was the only sub-index to show expansion during September.
The proportion of negative comments for September (58.0%) was down on August (59.6%) and July (58.5%). Negative comments received show that the services sector continues to struggle under weak economic conditions, with low consumer confidence, reduced discretionary spending, and high living costs curbing demand. Businesses report falling sales, fewer new contracts, and cautious clients delaying projects amid rising costs and ongoing uncertainty about the broader economy.
BNZ's Senior Economist Doug Steel said that "in isolation, the combined PMI/PSI activity indicator warns of economic growth struggling to gain traction".
Hovering below expansion
New Zealand’s manufacturing sector again remained just below expansion levels for September, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for September was 49.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was exactly the same result as August but below the average of 52.4 since the survey began.
BusinessNZ’s Director of Advocacy, Catherine Beard, said that while it was good to see the September result not showing increased contraction from August, the sector remains agonizingly close to returning to expansion mode.
"Despite the sector remaining in technical contraction, four of the five main sub-index values were in expansion during September. This was led by deliveries of Raw Materials (51.1), followed by Finished Stocks (50.4) and New Orders (50.3). Production (50.1) managed to keep its head above water, but Employment (47.5) was the primary reason for the September PMI result not being able to advance to expansion".
The proportion of negative comments from respondents stood at 60.2% in September, compared with 58.1% in August and 58.6% in July.
Manufacturers continue to report soft demand, with many noting lower order volumes, cautious customer spending, and ongoing uncertainty across domestic and export markets. Rising costs, weak confidence, and competitive pressures are squeezing margins, leaving many manufacturers in a holding pattern as they wait for clearer signs of recovery.
BNZ’s Senior Economist Doug Steel said that "the lack of improvement in the PMI risks a slower recovery than we have penciled in. Improvement is needed to be consistent with the pace of growth we forecast for the second half of this year".
RBNZ cuts OCR to 2.50%
For more than a year we have been forecasting the Official Cash Rate (OCR) to go below 3% by the end of 2025. It now is, with the RBNZ cutting the OCR by 50bps to 2.50% today.
QSBO supports lower rates, mixed signals on how far
For those that are inclined to think the economy needs the RBNZ to lower rates, the QSBO does not stand in the way of that view. But on the extent of the reduction required, there were mixed messages. It doesn’t make the RBNZ’s decision tomorrow easy.
Optimistic business outlook
Businesses remain firmly optimistic and have positive expectations for activity, according to the latest ANZ Business Outlook survey. Firm’s own activity expectations for 12-months ahead increased from 38.7 to 43.4 in September, with lifts broad based across all sectors. Based on historical relationships, this would imply annual economic growth a touch over 3%. That is consistent with our forecasts for the next 12 months. It is reassuring to see more evidence of businesses expecting recovery.
Job ads slowly starting to turn?
Job ads are starting to show some tentative signs of life, albeit from a very weak base. The latest 3-months (Jun – Aug) show a 1.9% lift in the number of ads relative to the previous 3-months (Mar – May). They also nudged back above year-earlier levels for the first time since late 2022.
NZ Underperformance Highlighted
We have long touted that GDP contracted in the second quarter of 2025. And going into today’s release we were the most pessimistic of local forecasters. But even we were surprised by the magnitude of the printed 0.9% decline for Q2.
Out of the worry zone
A sharp narrowing in the annual current account deficit came as no surprise today, but the extent of it sure was.
The current account deficit narrowed substantially to 3.7% of GDP in the year to June 2025. This was significantly smaller than the 4.8% of GDP that we and the market expected. The surprise was the extent of the revisions.
Less chance of inflation band breach
Selected price indexes for August were largely in line with expectations. While our Q3 CPI pick remains unchanged at 0.9% q/q and 3.0% y/y, the underlying decimals suggest there is now less chance that annual inflation goes above the 3% mark.
Services Sector Slump Persists
New Zealand’s services sector remains in an ongoing period of contraction, according to the BNZ – BusinessNZ Performance of Services Index (PSI).
The PSI for August was 47.5 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was 1.4 points lower than July, and well below the average of 52.9 over the history of the survey. The sector has now been in ongoing contraction for 18 months.
BusinessNZ's CEO, Katherine Rich said that the sector has now endured tough times for a year and a half, representing a very difficult period for many. For the sub-index results, both Activity/Sales (46.2) and New Orders/Business (47.8) slipped from July. Employment (48.3) did show a higher value than July, although still in long-term contraction.
The proportion of negative comments for August (59.6%) was up on July (58.5%) but down from June (66.2%). Service sector businesses reported widespread pressures from inflation, high interest rates, cost-of-living impacts, and weak consumer confidence, all contributing to reduced demand and spending. Other concerns included seasonal slowdowns, rising operating costs, supply chain disruptions, and government policy uncertainty.
BNZ's Senior Economist Doug Steel said that "across the economy, we still believe the general signs of a turning point are there. However, there is a very real risk any ensuing bounce takes longer than currently expected".
Struggling to move upwards
New Zealand’s manufacturing sector fell back into contraction during August, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for August was 49.9 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down 2.9 points from 52.8 in July and below the average of 52.5 since the survey began.
BusinessNZ’s Director, Advocacy Catherine Beard said that the August results suggest the sector has yet to turn the corner toward sustained growth. Although the reading was just shy of the no-change mark of 50.0, it still points to an industry struggling to regain its footing after an extended period of contraction through 2023 and 2024.
“Two of the five main sub-index values were in expansion during August. This was led by kew Orders (55.2), which encouragingly continues to trend upwards, reaching its highest level of activity since August 2022. Deliveries of Raw Materials (50.5) also remained in expansion, although down from July. In contrast, Production (46.6) fell 6.7 points from July, while Employment (49.1) and Finished Stocks (47.1) also recorded contraction.
The proportion of negative comments from respondents stood at 58.1% in August, compared with 58.6% in July and 65.5% in June. Negative comments indicated flat sales, with many customers cautious or inactive. Rising costs and global uncertainty are squeezing margins, leaving confidence low and recovery patchy.
BNZ’s Senior Economist Doug Steel said that “manufacturers are continuing to do it tough. We believe the general trend in the economy is still upwards, but indicators are often choppy around a turning point".
GDP likely lower in Q2
We have been warning of an economic contraction in Q2 for some time. Today’s data strongly support that notion.
Our estimate for Q2 GDP has been lowered to -0.5% q/q (from -0.2%) after crunching through today’s mass of manufacturing, wholesale trade, and services data.
Job ads few and far between
Labour market conditions remain soft. Indicative of this, after falling nearly 50% from their peak, job ads have wobbled around the same low level for over a year. In the three months ended July, there was a further 0.3% reduction in the number of ads relative to the previous three months.
ANZ business survey still robust
August’s ANZ Business Opinion survey continues to portend growth ahead. Yes, the own activity indicator eased from 40.6 to 38.7, but its level is still consistent with annual GDP growth around 3% on our estimates. This is well above our (and the RBNZ’s) current forecasts. We assume most of the responses were prior to the RBNZ’s dovish pivot last Wednesday.
RBNZ Doves Fly
The RBNZ is back on the warpath. Not only did it cut its cash rate 25 basis points to 3.0% but, in today’s Monetary Policy Statement, it gave a very strong indication there is even more to come. Accordingly, we are adding a further 25 point cut in November in addition to the cut we were already anticipating for October. This takes the low in the cash rate to 2.50%.