New Zealand’s economy contracted more than expected in the second quarter, with GDP falling 0.9%, worse than forecasts. The annual GDP decreased by 0.6%, leading to expectations of a steeper rate cut in October. Market now predicts 58 basis points of cuts to the OCR and a 20% chance of a 50 basis point cut in October.

The weaker economy was attributed to declining construction, slowing manufacturing, and weak service sector due to global uncertainty. The US import tariffs on New Zealand products further impacted the economy. Finance Minister Nicola Willis acknowledged the impact of international turmoil and uncertainty on investment decisions.

Despite the second quarter contraction, there are signs of improvement in the third quarter. Manufacturing and services indexes, along with employment and card spending data, show slight improvement. ANZ Senior Economist Matthew Galt believes the country will avoid another technical recession if growth continues in a muted manner.

Read more at Yahoo Finance: New Zealand economy contracts sharply, fuelling bets of steeper rate cuts