New Zealand's GDP grew by 0.8% quarter-on-quarter in Q1, with Middle East developments influencing future policy directions

(1) New Zealand's GDP grew by 0.8% quarter-on-quarter in Q1, meeting expectations; the year-on-year increase was 1.5%, higher than the market forecast of 1.1%. The Q4 GDP growth rate was revised up to 0.5% (initial value was 0.2%). Manufacturing was the main driver, with growth seen in 9 out of 16 industries. (2) Economists at Westpac Bank indicate that the central bank may focus more on economic trends after March, particularly the impact of surging fuel prices on economic activity, the effect of falling oil prices on inflation persistence, and whether peace agreements can be maintained. (3) Since August 2024, the Reserve Bank of New Zealand has cut rates by a cumulative 325 basis points, with the current interest rate held at 2.25%. The market expects about an 80% probability of a rate hike in July. Inflation stands at 3.1%, still above the 1%-3% target range. Weak net migration, a cooling housing market, tightening fiscal policy, and downside risks from Middle East conflicts continue to pressure the economy. Both the central bank and the Ministry of Finance anticipate that second-quarter economic growth has already been affected by the Middle East war.