Optimism to kick off the New Year
Resumed data flow over the last week suggests that New Zealand ended 2025 on a more optimistic note. Combining the messages of the QSBO, PMI and PSI reports, we see upside risk to our near-term growth projections. For the week ahead, the main data focus will be Friday’s Q4 CPI. Headline inflation is expected to print at 0.4% q/q and 2.9% y/y, a couple of ticks higher than the RBNZ’s November MPS forecast.
Happy New Year?
We head into a brand-new year quietly confident it will prove to be a much better one than any of the past three years. We say this mindful that we did not share the consensus view that calendar 2025 would prove to be filled with optimism. But we are quick to point out that “better” and “good” are two very different things. While we expect economic expansion in every quarter of the year, we are still very aware that conditions will remain tough for many. Both households and businesses will continue to struggle with elevated costs, and the household sector is unlikely to see much joy on the job front until much later in the year.
The Pre-Christmas Blockbuster
It is the usual massive pre-Christmas rush of economic information this week. Q3 GDP is expected to show a decent lift but is likely to overstate trend improvement. PMI/PSI reveal still challenging conditions for many. The Government’s HYEFU to show a long road back to surplus. Annual current account deficit still seen narrowing, for now. Selected Prices to inform our thoughts for Q4 CPI.
Welcome Dr Anna Breman!
Dr Anna Breman, the new RBNZ Governor, made an impressive debut before the Finance and Expenditure Committee last week. Governor Breman has hit the ground running. Falling dairy prices need to be watched closely, as downside risk accumulates. GDP partials this week expected to support forecast Q3 bounce. PMI, migration, and tourism data are also due.
More Signs of Economic Recovery
Some MPC members have noted they are not surprised at the market reaction to last week’s MPS. That is important because it suggests the Bank is comfortable with the market direction. New RBNZ Governor Dr Anna Breman starts today. There are more signs of economic recovery. We nudge our Q3 GDP pick up to 0.6% q/q awaiting more ‘partials’ over this week and next. Dairy prices are under downward pressure.
RBNZ to lop another 25 points off its cash rate
Local market attention will this week be centred on Wednesday’s RBNZ Monetary Policy Statement. In short, we see the RBNZ cutting its cash rate a further 25 basis points to 2.25% and leaving the door open to a further reduction in February next year. Q3 retail sales, updates on business and consumer confidence, and October filled jobs are the key data releases but are all scheduled post the RBNZ meeting.
RBNZ November MPS Preview
Our central view is the Reserve Bank cuts the cash rate a further 25 basis points to 2.25% when it presents its November 26 Monetary Policy Statement (MPS). Moreover, we expect the Bank to leave the door open to a further reduction in February next year.
Monitoring progress
Forward looking indicators have been promising some improvement in activity. We will be monitoring the coming week’s data for more signs of the promise translating into actual activity. The NZD has pushed further below RBNZ assumptions raising questions around how fast and far inflation will ease ahead. Inflation expectations data is due for release tomorrow.
Labour market soft, but more signs of life appearing
Wednesday’s Q3 labour market data are expected to show a soft labour market, but with some signs of stabilisation. More monthly economic indicators are showing signs of life supporting our expectation of economic recovery. The RBNZ releases its Financial Stability Report on Wednesday, and the latest Crown accounts are due Thursday.
Q3 Labour Market Preview
We expect next Wednesday’s Q3 labour market data to show a soft labour market, but with some signs of stabilisation. We anticipate minimal employment growth, a nudge higher in the unemployment rate, and easing annual wage inflation. Business and consumer confidence updates are due this week and a few RBNZ speakers are on the circuit.