Insights 
VT 
New Zealand’s Q1 GDP increased by 0.8% quarter-on-quarter, slightly ahead of the 0.7% projection and the Reserve Bank of New Zealand’s estimate of 0.4%. This rise was driven by services and manufacturing sectors, with construction stabilising after previous contractions, marking the second consecutive quarter of economic growth.
Despite the positive GDP growth, the economy remains under pressure, with annual per capita GDP still experiencing a downturn. External factors such as tariffs, reduced consumer momentum, and global volatility contribute to the challenging outlook.
Detailed Gdp Growth
The detailed GDP growth shows business services gaining momentum and a stable manufacturing and construction sector. However, recent indicators suggest economic activity may have peaked, with potential risks of stagflation-like conditions arising.
The Reserve Bank of New Zealand is anticipated to maintain rates in July, with a potential cut in August, reducing the Official Cash Rate to 3%. While the GDP growth provides some relief, rising oil prices due to geopolitical issues could trigger further inflation, complicating future monetary policy decisions.
What the current data reveals is a mixed economic setting. Yes, the quarterly GDP rise of 0.8% beats both the market forecast and the central bank’s earlier anticipation. That’s not something to brush aside. The services and manufacturing sectors have done much of the lifting—helped along by a rebound in construction, which had been dragging in previous quarters. It’s the second quarter in a row of expansion, which, taken in isolation, may look like progress.
But when we adjust for population growth, the picture dims. The per capita GDP measure still paints a contracting trend over the year, which means that while the economy is growing in raw figures, the average person or business isn’t necessarily experiencing that improvement. That’s an important angle to monitor, as it helps us understand why broader underlying demand may remain soft despite the headline uplift.
Global risks are not receding either. Tariff activity abroad and a cooler domestic consumer scene remain steady hurdles. These aren’t just temporary disturbances—they indicate that demand conditions may not support more aggressive upside from here. It’s less about where we’ve come from and more about whether this momentum can be sustained. We expect discretion to dominate positioning in the coming days.
Monetary Policy Considerations
In terms of what’s driving the recent improvement, business services are gathering pace. Activity here tends to mirror forward-looking business confidence and corporate investment. If this continues, it sets a floor under near-term economic activity. That said, manufacturing and construction aren’t offering much by way of acceleration. They’re steady, nothing more.
Where concern starts to build is in the signs of a peak. Consumption indicators, activity surveys, and retail figures have all cooled in recent data releases. The pattern that’s forming raises a plausible concern around policy lag and whether we’re setting up for a drawn-out flattening of output, with pressure points building via imported costs rather than domestic demand.
Oil markets are also in motion again. With geopolitical strains pushing prices higher, input costs for firms are bound to rise. That filters through indirectly into inflation expectations, which the central bank must carefully manage. We know their target band leaves them little room to overlook second-round effects caused by higher energy. That part of the inflation puzzle becomes harder to ignore now.
Monetary policy calibration remains guided, for now, by expectations of a hold in July. Many are factoring in a pivot shortly after, with one possible rate cut emerging in August. That would bring the cash rate down to 3%, easing pressure across rate-sensitive sectors. But this assumed trajectory is not locked in. A continued lift in energy prices or a surprise in wage data could move that scenario off track.
From a trading perspective, the time to lean heavily on terminal rate odds has passed. Focus now shifts toward the slope rather than the ceiling—particularly how quickly easing expectations shift in response to forward-looking inflation signals. The next CPI print and labour market survey may not just influence yields, but widen implied volatility in rate-linked expiry structures. That’s where the opportunity—and risk—begins to build.
While growth isn’t in reverse, it isn’t running hot either. Think of it more as a churn in momentum—still functioning, but prone to stalling. In that sort of backdrop, long gamma positioning makes more sense than outright direction. Market participants should pay attention to what forward curves are pricing in over the 3–6 month window, not just the near-term meetings, as the narrative could shift without a clear moment of re-pricing. It will pay to have options that don’t rely too heavily on a one-way economic thesis.
