A Big Broad-Based Bounce Back

• The Kiwi economy staged an impressive rebound in the September quarter. And off an even deeper contraction in Q2. Economic activity lifted a solid 1.1% over Q3 with strength spreading across almost all industries. The external sector continues to shine. But we're seeing a resurrection in interest rate sensitive sectors too.
• A big highlight in today's report is the lift in business investment. Up 3.2% over the quarter, it's the strongest quarterly lift in three years. Increased confidence in the outlook is turning into action. That’s the data we’ve been waiting to see.
• We’re climbing our way out of the deep dark recession of 2024. But output today is still 0.6% below peak levels seen in March 2024. But our September economic report card confirms a brighter outlook ahead.

We’re finishing the year on a positive note. Output across the Kiwi economy lifted a solid 1.1% over the September quarter. The bounce out of the June quarter contraction was impressive, especially because it follows a weaker than initially printed reading (now -1.0%, previously -0.9%). Looking back at 2024, the recession was a touch shallower and more weighted into the September quarter, making the annual rate of +1.3% look a little stronger. On a per person basis, economic activity rose 0.7% over the year. That's a welcome improvement. The broad-based nature of the bounce was expected, but good to see confirmed. Of the 16 measured industries 14 recorded gains. Services were strong. No doubt helped by the lift in hours worked over the quarter. And we saw meaningful gains in retail and construction - the two industries hardest hit, most interest rate sensitive sectors.

Expenditure GDP showed an even stronger lift in activity, up 1.3% over the quarter following an (upwardly revised) 0.8% slide in Q2. And it was our external sector on full display. Exports were up 3.3% over the quarter. Within that, services jumped 4.3%. The recovery in tourism has played a big role, as visitor arrival numbers close in on pre-covid highs. Goods exports grew 3.7%, led by a 9% increase in dairy products. The last 12 months have been good for dairy, with exports up 7.4%. But there’s been less love for our meat abroad, with exports down 1.4% on the year. That may well rebound in the current quarter given that President Trump lifted the reciprocal tariff on select agri products, including beef. That’s great news for us. 

The September quarter also saw business investment shine. Gross fixed capital formation increased 3.2% over both the quarter and year. That’s the strongest quarterly print in three years. We love to see it. Businesses invested more in physical fixed assets over the quarter, with increases in transport equipment and plant, machinery, and equipment. On the household side, consumption grew just 0.1% and but almost 2% higher compared to a year ago. In the September quarter households spent less on services (-0.1%) and non-durable goods (-0.2%), but more (2%) on durables. And it was everything electronics that filled the shopping carts.

The September quarter rebound is impressive. But the overall size of the economy has largely returned to where we were at the start of the year. The level of output is just a touch (0.1%) above Mar-25 levels. And reflecting the depth of the recession in ’24, output today is still 0.6% below the recent peak in Mar-24. Zooming out, we’ve essentially been tracking sideways for the past two years.

That said today’s report card for the Kiwi economy confirms that we’re on the road to recovery. And things should only get better from here. High frequency data for the months of October and November reflect that activity is gathering momentum into the final stretch of 2025, setting us up for an even better 2026.

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