Finance Minister Nicola Willis says a new Reserve Bank governor will be announced “very shortly” as she comes under growing pressure to tackle New Zealand’s economic woes. 

Economists are calling on the Reserve Bank to cut the Official Cash Rate more aggressively after yesterday’s shock GDP result. 

New Zealand’s gross domestic product (GDP) fell by 0.9% in the June quarter, a reduction well over market expectations. 

Expectations were for a 0.4% decline in GDP, while Reserve Bank forecasts were for a 0.3% drop. 

Prime Minister Christopher Luxon will speak to media at 9.45am, where he’s expected to field questions about the result. The press conference will be streamed live at the top of this article. 

The worse-than-expected outcome could mean the Reserve Bank will cut its Official Cash Rate (OCR) more aggressively than was previously thought, economists said. 

In an interview with Newstalk ZB’s Mike Hosking this morning, Willis was asked what she expects from the Reserve Bank to address the situation. 

“I will very shortly be announcing a new governor for the Reserve Bank. Obviously, we’ve had a chair change at the Reserve Bank. We are refreshing that institution and I think that is very good indeed,” Willis said. 

Finance Minister Nicola Willis during the press conference in her Beehive office, Parliament, Wellington. Photo / Mark Mitchell 

She would not give a specific date for the announcement, instead describing it as happening “very shortly”. 

She confirmed she knew who the new governor is. 

Christian Hawkesby is the current Acting Governor of the Reserve Bank. He was appointed to a six-month term in April following Adrian Orr’s resignation in March. 

Key takes aim at Reserve Bank 

Former Prime Minister Sir John Key has backed Willis’ finance leadership and directed blame towards the Reserve Bank. 

“The person that’s not doing the job or the people that are not doing their job are the Reserve Bank,” Key told Newstalk ZB’s Mike Hosking. 

Former Finance Minister Roger Douglas yesterday called for Willis to resign, but Key said she shouldn’t lose her ”nerve”. 

“She worked for me. I know Nicola very well and she’s outstanding. 

“I think what you’ve seen over the last 18 months or so is a Government that has been working hard to get the economy straightened up after, frankly, the mess it inherited. 

“But it hasn’t had a mate in the Reserve Bank.” 

Key said the country needs to get its “mojo” back, and policy changes to the Resource Management Act and the foreign buyers ban would help. 

“This is a very unusual period in New Zealand history because this has been the one that you’ve seen a very significant pullback in housing in Auckland and Wellington. 

“All these people who hate housing... it’s slowed down the construction sector, and you can see those numbers yesterday. And the second thing is, because people feel like they’re going backwards in their biggest asset, it strips them of confidence.” 

Former Prime Minister Sir John Key. Photo / Greg Bowker Visuals 

GDP data ‘ugly’ - economist 

ASB senior economist Mark Smith said economic predictions for quarter three would likely change in response to this week’s GDP result. 

“We saw quite a pretty strong start to the year, and really what we saw in Q2 was very much an unwinding of those things, and it happened a lot more significantly than what we thought. 

“What we’re seeing now is that the economy does not really have a lot there that can really push it up, apart from really monetary policy.” 

Smith said he thinks the Reserve Bank’s focus has been on reducing inflation, but the Reserve Bank can now cut the OCR strongly because there is confidence that inflation will be lower “later down the track”. 

“The focus is now on the labour market rather than inflation. 

“We think the Reserve Bank will need to put the foot on the gas pedal to try and get the economy going. 

“Previously, when inflation was too high, the foot was on the brake, and now the foot will need to go on the gas pedal.” 

Smith said floating mortgage rates will move down by quite a margin, and there might be a small reduction in fixed rates. 

Stats NZ said the quarterly decline was driven by manufacturing, down 3.5% and construction, down 1.8%. 

Per capita GDP fell by 1.1% in the quarter. The fall followed a revised 1.2% rise in GDP in the March quarter. 

Kiwibank chief economist Jarrod Kerr said the data was “ugly” and showed the Reserve Bank hadn’t done its job. 

“We shouldn’t be seeing contractions like this a year out from what was a severe recession last year. We should be recovering by now. 

“Ten out of the 16 industries that we measure are in contraction again. This is very, very prolonged and frustrating recovery, and businesses are fed up.” 

Kerr said the central bank needed to lower the OCR from 3% to 2.5% as soon as possible. 

“We need the Reserve Bank to show some signs of leadership rather than simply following outdated data.” 

ASB chief economist Nick Tuffley said the contraction was more substantial than expected, including in areas like manufacturing. 

“We do expect to see a degree of rebound coming through, but we’ve seen some pretty mixed signs so far. 

“We’ve seen some indications that card spending has lifted, but surveys of businesses are looking pretty patchy at this point. 

“It’s very early days in getting a sense with what’s happening in the export sector, but we can see tourism momentum has already been slowing this year and you’ve still got the question marks about the tariff impacts to come through.” 

‘We shouldn’t overreact’ - Willis 

NewstalkZB’s Mike Hosking asked Willis if we could be heading for a recession. 

“We shouldn’t overreact to a bad quarter,” Willis said. 

“You’ve got electronic card transaction values up, you’ve got retail spending. You’re seeing that job ads are up the most significantly in many years. You’ve got migration data starting to improve and most significantly, Mike, over the next six months, we’re looking at around half of mortgages going on to lower rates, and that means that there will be more cash flowing into the economy.” 

Willis said economists have told her “there’s every reason to believe” that in the current financial quarter, the country is growing, not in a recession. 

“Now we’ve got to dig in, we’ve got to do the things that we know are needed for this economy, and that is what our Government is doing.” 

Jaime Lyth is a multimedia journalist for the New Zealand Herald, focusing on crime and breaking news. Lyth began working under the NZ Herald masthead in 2021 as a reporter for the Northern Advocate in Whangārei.