Bank economists expect the economy shrank in the second quarter of the year, with three out of five forecasting a deeper contraction than the Reserve Bank's expectation of a 0.3% quarter on quarter (q/q) drop.
The official second quarter data will be released on Thursday morning, but the writing was already on the wall following months of weaker-than-expected manufacturing, wholesale trade and services data.
No one was forecasting anything near the solid 0.8% q/q rise in gross domestic product (GDP) reported in the three months ended March, though annual growth was still 1.1% down on the year earlier.
The second quarter had been dogged by bad economic news early in the second quarter, with weak consumer and business confidence translating into weaker manufacturing and service sector data.
BNZ Bank expected second-quarter GDP to be down 0.5% q/q, which was considerably more than the Reserve Bank's forecast.
"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," BNZ senior economist Doug Steel said.
He said second quarter numbers had also been distorted by temporary closures of some manufacturers as a result of energy shortages, and the lowest meat processing numbers in more than four decades.
Westpac and ANZ bank were forecasting a contraction of 0.4% q/q, mostly as a result of seasonal distortions, while the underlying picture appeared brighter than headline numbers would suggest.
Kiwibank and ASB were forecasting a slightly more optimistic contraction than the others, in line with the Reserve Bank's forecast of a 0.3% q/q drop.
"The slowdown is expected to be driven by softness in manufacturing and business services - sectors that had an initial tailwind to start 2025," ASB said.
"Sectors that have been fragile during this cycle, such as construction, are expected to remain soft."
ASB expected the Reserve Bank to stick with a forecast 25 basis point cut to the official cash rate (OCR) at each of its next two meetings in October and November.
"The underlying message is that the NZ economy has decelerated over the June quarter - a view we've long held, and one that helped underpin the RBNZ's dovish tilt in August," ASB said.
"We suspect annual per capita growth will print near flat, following four quarters of negative readings - Kiwis have done it tough in this cycle, but the hope is that the worst is already behind us."
Kiwibank said the second quarter forecast was frustrating in that the decline two quarters of 0.5% q/q in December and 0.8% in March.
"But now that strength has faded. On an annual basis, activity has been flat, meaning the economy is no larger or smaller than it was a year ago," Kiwibank said.
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"We haven't climbed out of the hole. In effect, activity has simply stabilised despite the significant rate cuts we've seen to date.
"Our recovery is dragging on and it's a frustration for households and businesses across the country."
Kiwibank said economy needed stimulus and the RBNZ's 50-basis-point cut to OCR to 2.5% will brighten the economic outlook.
"Forward looking indicators for activity in the September quarter are pointing to a rebound in activity. And that trend should gain traction with the additional 50bps of easing signalled by the RBNZ," it said.
RBNZ governor Christian Hawkesby said the economy appeared to stall in the middle of the year, creating even more economic slack, and scope to cut the OCR
"While our central projection for the OCR is to fall to around 2.50% by the end of the year, that could occur faster or slower depending on how the economic recovery evolves," Hawkesby said.
"Further data on the speed of New Zealand's economic recovery will be what influences the future path of the OCR."
By Nona Pelletier of rnz.co.nz
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