Growth stepped down from a revised estimate of 0.7 per cent growth in December 2014.
This seals the case for a July official cash rate (OCR) cut from the RBNZ.
“We are seriously considering forecasting further OCR cuts beyond July, pending further analysis of this weak GDP data,” said Westpac’s chief economist, Dominick Stephens.
“The main areas of weakness were mining and agriculture, which were hit by low oil prices and drought respectively. This weakness was expected, and is likely to unwind in coming quarters.”
Construction remains a key driver of growth, up another 2.5 per cent this quarter with more growth expected.
Strong tourism receipts featured prominently.
“However, we suspect that the early timing of Chinese New Year was a factor here, so tourism receipts may unwind next quarter,” said Stephens.
“The big surprise was business investment expenditure, which was very weak. This is an ill tiding for the state of business confidence and growth going forward.
“Most service sectors enjoyed reasonably strong growth, although not as strong as we anticipated.
“The general theme was less buoyancy in domestic demand than anticipated, making this a very significant data development.”
The exchange rate fell 0.6 cents and the two-year swap rate fell four basis points. “We would expect further market reaction ahead, as a July OCR cut moves toward 100 per cent pricing in time,” concluded Stephens.