New Zealand economy set for steady recovery in 2025

This amid falling inflation and interest rates

New Zealand economy set for steady recovery in 2025

As we step into 2025, the economic climate in New Zealand is looking up.

Kiwibank economists Jarrod Kerr, Mary Jo Vergara (pictured above, from left to right), and Sabrina Delgado (pictured right) share an optimistic view, fuelled by stabilising inflation and falling interest rates.

“We’re going into 2025 feeling optimistic for the Kiwi economy with rates continuing to fall and inflation stabilising at 2%,” they said.

New Zealand’s path to recovery

Despite the brighter outlook, challenges remain.

“Yes, there’s still a couple of hurdles to get through,” the Kiwibank economists said, suggesting that while surprises are expected, the overall direction is positive.

Business confidence and inflation trends

A recent uplift in business confidence has been observed following the NZIER’s Quarterly Survey of Business Opinion.

This week, attention turns to the inflation data for the last quarter of 2024, anticipated to show a slight decrease to 2.1% from 2.2%.

“Our forecasts are broadly in line with the RBNZ’s expectations,” the Kiwibank economists said, highlighting a decrease in the consumer prices rise and continued deflation in tradables.

Domestic inflation dynamics

While imported inflation has been a driver towards the target inflation rate, domestic inflation persists at higher levels.

“The good news is that it has turned,” the economists said.

The annual non-tradables inflation rate is expected to decelerate, reflecting a need for a more significant slowdown in services inflation to achieve a sustainable target.

Monetary policy and the financial market

With the Reserve Bank of New Zealand (RBNZ) focused on the underlying inflation trend, there is expectation for policy adjustments.

“Wednesday’s update, if as expected, should keep the RBNZ on course to deliver another 50bp cut to the cash rate at its February meeting,” the Kiwibank economists said.

Currency and global market dynamics

The financial market sees the Kiwi dollar starting 2025 weaker, influenced by global events and US economic policies.

“As last week progressed, US CPI indicated that the Fed could afford to be a little less cautious,” said Mieneke Perniskie, a trader.

The expectation of further rate cuts by the RBNZ also plays a significant role in the currency's performance.

Looking ahead

The immediate focus remains on the upcoming consumer price inflation data and its implications for RBNZ’s next moves.

Additionally, global events such as the inauguration of President-elect Donald Trump and his policy decisions will likely impact financial markets and economic forecasts.

As New Zealand navigates through these dynamics, the path to economic recovery appears promising, yet requires careful monitoring and strategic policy adjustments.