New GDP data won't reflect Iran war impact

The economy is expected to have started the new year with the strongest growth in a year, but it has been hard hit by the US/Israel war with Iran.

Gross domestic product (GDP), the broad measure of economic growth, is expected to have grown about 0.9 percent in the three months ended March, for an annual rate of about 1 percent.

BNZ senior economist Doug Steel said many parts of the economy had been showing solid signs at the start of the year.

"The early partial indicators including retail sales and international trade came in near enough to expectations, though recent building work data produced a shockingly weak outcome seeing us tab down our GDP view a couple of ticks to 0.9 percent for the quarter.

"It would be the third consecutive quarterly economic expansion confirming recovery was well underway ahead of the conflict in the Middle East which started in the second half of the first quarter."

Kiwibank economist Alexandra Turcu said some sectors would be prominent for the numbers.

"Standout industries are likely to be sectors tied to tourism. It was another quarter of strong visitor arrivals with plenty of indicators pointing to a lift in transport, arts and recreation, and retail trade and accommodation."

Growth bombed by Middle East conflict

The data released on Thursday may be slightly affected by the start of the Middle East conflict but the major impact will be in the quarter just ending.

"The outlook for growth ahead has materially darkened as the shock to oil prices has major downside risks to global and Kiwi growth," Turcu said.

"The March quarter GDP report will tell us our starting point, but the storm will dictate where we end up."

ANZ senior economist Matthew Gault said the surge in energy prices caused by the conflict would inevitably affect the economy for the June quarter.

"It's possible that we will see a small contraction for the quarter, but it's going to be a matter of the recovery being stalled not derailed.

"You could liken it to a car idling at the traffic lights rather than rolling backwards downhill."

RBNZ watching closely

Some economists have suggested a strong GDP number and the potential end of the Middle East conflict might tempt the RBNZ to raise its official cash rate (OCR) as soon as next month to stifle any further inflation impulse.

But ASB senior economist Kim Mundy doubted that.

"In our view, there is a high hurdle to Q1 GDP data impacting the RBNZ's thinking about when to start OCR hikes, outside of a sizeable surprise in either direction.

"We still favour a July start for OCR hikes and have pencilled in four 25bp rate hikes over the remainder of 2026."

Turcu said there was still little justification for rate rises.

"This is not Covid. Kiwi disposable incomes are being eroded away by increased fuel costs, businesses are facing reduced margins and, in some cases, actual losses. Projects are being deferred in hopes that prices will come down again in future, if not cancelled all together."