New Zealand’s Economy Faces Challenges, Delayed Recovery Expected

New Zealand’s economic recovery is facing significant delays, with experts predicting a rebound may not occur until 2026. According to Kiwibank’s latest Annual Regional Note, the national average economic score has risen slightly from three out of ten to four, indicating modest improvements but overall persistent weakness across the country.

Several regions are reporting varied performance. Southland and Otago lead with scores of five, bolstered by a resurgence in international tourism and a boost in employment figures. In contrast, areas like Northland, Taranaki, and Gisborne have seen declines, with Taranaki experiencing the most significant drop in employment, falling by 8 percent. Northland also reported a drop in building consents, indicating a sluggish construction sector.

Retail sales remain below average levels across most regions, reflecting a lack of consumer confidence and subdued household spending. Kiwibank noted that Wellington experienced the steepest annual decline, with a contraction of -3.3 percent. Other regions, including Waikato, Northland, and the Bay of Plenty, showed slight improvements compared to last year.

Regional Differences in Economic Sentiment

The economic outlook in Wellington appears particularly bleak, with its score improving only marginally from two to three out of ten. In contrast, Auckland’s score increased from three to four. Jarrod Kerr, Kiwibank’s chief economist, characterized Wellington as “more pessimistic,” citing the city’s struggles in recent years. He remarked, “You can see it in their activity, you can see it in the housing market. The city has been brought to its knees and is struggling to shake the pessimistic vibe.”

Despite some regions showing signs of optimism, the overall picture remains troubling. Kerr emphasized that while certain areas in the South Island are faring better, the highest scores barely reach five out of ten. “We’re really crawling out of this recession rather than regaining our footing and looking to grow from here,” he stated, highlighting that the economic challenges persist nationwide.

Comparative Economic Performance

New Zealand’s economic situation is also less favorable when compared to Australia. Kerr noted that New Zealand’s unemployment rate stands at over 5 percent, while Australia’s is close to 4 percent. He attributed part of this disparity to more aggressive interest rate hikes by the Reserve Bank of New Zealand (RBNZ) compared to the Reserve Bank of Australia (RBA).

“We were much more aggressive in our rate hikes than in Australia,” Kerr explained. Both central banks made decisions during the Covid period that, in hindsight, led to overstimulation. As Kerr pointed out, the RBNZ has maintained a high official cash rate of 5.5 percent for an extended period in an effort to combat inflation. This approach has contributed to a recession that Kerr claims the RBNZ “openly orchestrated,” stating that they believed a recession was necessary to bring inflation down.

Although recovery is anticipated, Kerr expressed concern about the pace. He remarked, “We’re hoping it takes off in the second half of this year as more and more people refix onto lower rates. But now it’s more of a 2026 story.” As New Zealanders look ahead, the focus will be on navigating the economic challenges that lie ahead while awaiting a more pronounced recovery in the coming years.