GDP Contracts 0.9% in Q2 Amid Global Tariff Uncertainty, Minister Optimistic

New Zealand’s economy contracted in the second quarter of the year, reflecting the impact of global instability and trade uncertainty on both consumers and businesses, according to newly released data from Stats NZ.

Figures show that real Gross Domestic Product (GDP) fell by 0.9% in the three months to June, following a 0.9% increase in the first quarter. The reversal underscores the challenges facing the economy as international turbulence disrupts investment decisions and trade flows.

Global Turmoil Weighs on Confidence

Finance Minister Nicola Willis said the contraction highlighted how quickly global events can spill over into domestic conditions.

“International turmoil and uncertainty relating to tariffs clearly had an impact on firms’ and households’ willingness to make investment decisions,” Willis said.

The second quarter began just one day before the United States announced new tariffs, which rattled markets and created a sudden climate of caution.

“The economy had been growing strongly in the previous six months, but suddenly had the stuffing knocked out of it. I feel for people and businesses who have been affected,” Willis added.

Looking Beyond the Quarterly Data

While acknowledging the setback, Willis urged New Zealanders to view the data as a snapshot of the past rather than a predictor of the future.

“It is important to remember that this is backwards-looking data. We are now nearing the end of the third quarter and there are signs the economy is growing again,” she said.

She pointed to lower interest rates feeding into the economy, including increased mortgage lending, as early indicators of a rebound.

Positive Outlook for Exports and Growth

Despite fears of widespread disruption, Willis said the effects of the tariffs had been less damaging than initially feared, and that most of New Zealand’s export sectors remain in a strong position.

Forecasters across the private and public sector are predicting a return to growth in the months ahead as tariff-related uncertainty begins to ease and consumer confidence gradually stabilises.

Broader Context

The contraction comes at a time when many advanced economies are grappling with the consequences of shifting trade policies, inflationary pressures, and fluctuating commodity prices. New Zealand’s heavy reliance on agricultural and commodity exports makes it particularly sensitive to global market changes.

Economists note that while quarterly contractions are concerning, New Zealand has weathered similar dips in the past and recovered strongly when global conditions stabilised. The combination of low interest rates, resilient export markets, and pent-up household demand could provide the springboard for renewed growth.

Government’s Focus

The Government says it remains focused on ensuring that the economy can bounce back quickly, with policies designed to provide stability for businesses and support households through challenging conditions.

“All forecasters are expecting economic growth to strengthen from now on as uncertainty about the impact of increased tariffs eases,” Willis said.