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3 Aug 2025 14:56
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  •   Home > News > Business

    How real-time data can lead to better decisions on everything from NZ’s interest rates to business investment

    New Zealanders have often been frustrated with crucial economic decisions being made using months’-old data. A new tool is starting to bridge that gap.

    Dennis Wesselbaum, Associate Professor, Department of Economics, University of Otago
    The Conversation


    It is late July, and New Zealand is slowly receiving economic data from the June quarter. Inflation has hit a 12-month high, for example, confirming what many already suspected. But the country is still nearly two months away from getting figures on economic activity – namely, gross domestic product (GDP).

    Official statistics such as GDP and inflation have long been delayed, offering a picture of how the economy was, rather than how it is. Stats NZ, for instance, released GDP data for the December 2024 quarter in March 2025 – a lag of around three months. As a result, economic decisions and public debate are often based on out-of-date information.

    One example from last year illustrates how such delays can distort policy.

    In August 2024, the Reserve Bank of New Zealand cut interest rates a year earlier than markets had expected, despite considering further hikes just months before. With no monthly inflation or GDP data, the Reserve Bank had to rely on private-sector indicators while waiting for official figures, which later confirmed that inflation was indeed easing.

    This is where “nowcasts” prove useful.

    Launched in April, the Reserve Bank’s “nowcasting” tool – Kiwi-GDP – publishes weekly estimates of economic activity. Using advanced statistical models to estimate current GDP growth, it aims to bridge the gap between real-time developments and the lagging arrival of official statistics.

    As of mid-July 2025, Kiwi-GDP suggests there may be a decline in economic activity. The model estimated negative GDP growth, with figures from July 18 indicating a decline of 0.29%.

    This marks a sharp reversal from earlier estimates of around 0.8%, and even from late June, when the model still pointed to modest positive growth.

    The downward revision appears to be driven primarily by weakness in retail and consumption data, as well as survey-based indicators. These early signals suggest that economic momentum may be fading, even before the official GDP data for the June quarter are released.

    But while the tool offers insight, it is not without pitfalls. Politicians and economists must be cautious in interpreting its weekly updates.

    The promise and perils of ‘nowcasting’

    Tools such as Kiwi-GDP allow policymakers and analysts to synthesise multiple data sources and form an informed view of current conditions.

    But not all indicators are equal. Some are timely; others are noisy or unreliable. A good “nowcast” weighs data based on its quality and predictive value.

    The shift in outlook for the New Zealand economy illustrates both the strength and the limitation of these tools: it reacts quickly to new information, but is also prone to significant revision.

    This volatility poses challenges for policymakers. When monetary policy decisions were made in May, the prevailing “nowcast” pointed to 0.5% growth for the June quarter. If that projection influenced decision-making, the resulting policy would be misaligned with economic reality.

    Although “nowcasting” improves real-time analysis, its very responsiveness exposes central banks to risk.

    Limitations of Kiwi-GDP

    There are other New Zealand specific concerns. Kiwi-GDP relies on a single model, which comes with inherent limitations. Even in stable conditions, the actual economic process is likely more complex than any model – however flexible – can capture.

    As the economy evolves, the best models shift with it. These shifts are difficult to detect from past performance alone. Relying on one model increases the risk of blind spots and instability.

    A better approach would combine forecasts from multiple models. This reduces the impact of individual assumptions and helps smooth out measurement errors.

    Another drawback is that Kiwi-GDP produces point estimates – a single number for GDP growth – rather than a range of possible outcomes. This assumes the cost of forecast errors are equally likely to be positive or negative, when in fact they are not.

    Overestimating growth could lead to premature rate hikes and an unnecessary slowdown; underestimating it might result in overly loose policy and rising inflation. For policymakers, the consequences of being wrong vary depending on the direction of the error.

    To improve decision-making, Kiwi-GDP should make uncertainty more explicit. Presenting a range of outcomes or scenarios would help ensure that risks are properly accounted for. Without such transparency, there is a danger that decisions are made with a false sense of confidence.

    Real-time insight

    “Nowcasting” helps bridge the gap between decision-making deadlines and the delayed publication of official data. By leveraging real-time indicators, it offers a clearer picture of where the economy stands.

    Forecasting the future remains important – but understanding the present is just as crucial. Without an accurate sense of the current state of the economy, informed policymaking becomes much harder.

    The Conversation

    Dennis Wesselbaum does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

    This article is republished from The Conversation under a Creative Commons license.
    © 2025 TheConversation, NZCity

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