It’s been a challenging year for the New Zealand economy, with rising unemployment, declining GDP, and weak consumer confidence. However, economists now suggest that there are several reasons to feel optimistic about the country’s economic outlook.
Kiwibank Chief Economist Jarrod Kerr highlights the recent drop in the official cash rate as a potential game-changer. “People often say to me ‘there’s been 250 basis points of cuts, it’s not working’… it’s like yeah because it only took it back to a neutral setting at 3%. [At 2.5%], now we’ve actually gone into stimulatory territory,” Kerr explains. He believes that lower interest rates will entice investors, developers, and businesses, and provide relief to households with debt.
Interest Rates and Economic Confidence
Infometrics Chief Forecaster Gareth Kiernan agrees that interest rates will play a crucial role in the economic recovery. “People can have a degree of certainty that they will remain that way throughout 2026, which should generate more confidence among households about spending,” he notes.
ANZ Senior Economist Miles Workman adds that the Reserve Bank’s commitment to supporting the recovery is reassuring. “They’re working out what level of interest rate that’s going to take but they are going to get that right eventually,” Workman says, expressing confidence in the ongoing recovery.
Job Market and Export Strength
After a significant decline, job advertisements have increased for the first time in over three years, with positive growth recorded in July and August. “Job numbers have managed three positive months for the first time since mid-2023,” Kiernan points out, acknowledging that while the increases are modest, they signal a potential turnaround in the labor market.
Meanwhile, the primary sector continues to perform well, with strong prices for dairy, meat, and horticulture. “Primary sector export returns have been stellar over the past year,” says BNZ Chief Economist Mike Jones. Agricultural exports reached $53.0 billion in the year to August 2025, marking a $7.5 billion increase from the previous year.
Global Trade and Domestic Spending
Despite initial fears, US tariffs have not significantly impacted New Zealand’s exports. “The exporters I’ve spoken to who export into the United States, they’re not worried at all,” Kerr remarks, noting that the Kiwi dollar’s decline has mitigated some of the potential pain.
Thanks to higher commodity prices and reduced spending on international imports, New Zealand’s terms of trade have improved significantly. “The upshot is New Zealand’s a lot less vulnerable to global credit pulling the plug on us,” Workman explains, highlighting the positive implications for the country’s creditworthiness and interest rates.
Retail Sales and Government Spending
Core retail electronic card sales have seen a 1.7% increase over the past three months, marking the best result since late last year. Simplicity Economist Shamubeel Eaqub and Kerr anticipate increased government spending in the coming year, as it is an election year. “Noises are building of more spending on maintenance, capital expenditure,” Eaqub notes.
Looking Forward: A Resilient Recovery
Eaqub emphasizes that economic downturns eventually end, and it’s important to avoid getting trapped in negative thinking. “It’s easy to get trapped in negative thinking,” he says, reminding that a third of households report being better off than a year ago.
While challenges remain, there are signs of businesses succeeding and individuals getting ahead. “Some people are getting ahead. We hear about businesses closing but the total number of businesses is higher than it’s ever been,” Eaqub adds.
Workman concludes by stating that there is no underlying global crisis to hinder New Zealand’s recovery. “If the demand is there, the credit availability is there. There are no major handbrakes on that front. Broader economic conditions are in place for a recovery,” he asserts, suggesting a cautiously optimistic outlook for New Zealand’s economy.
