New Zealand's economic landscape: NZIER's 2025 forecast
New Zealand is poised for an economic downturn with an expected contraction of -0.8% in the GDP for the year ending March, according to the latest NZIER Consensus Forecasts.
This follows revisions of historical GDP data by Stats NZ, revealing a contraction during the June and September quarters of 2024.
However, prospects for 2025 are looking up, with a forecasted growth of 2.1%, as lower interest rates are anticipated to fuel economic recovery.
Household spending and investment adjustments
Ting Huang (pictured left), a senior economist at NZIER, noted significant revisions in household spending forecasts, largely due to around 55% of mortgages set for repricing in the upcoming six months.
This repricing is expected to reduce mortgage repayments, potentially boosting discretionary spending despite a soft labour market and slowing net migration.
The investment outlook, particularly in residential investment, projects a downturn for the coming year but anticipates recovery in subsequent years, driven by an expected increase in residential construction demand.
Export and inflation dynamics
The export growth outlook for the year ending March has been revised upward, supported by strong global demand and reduced global production.
However, this trend is expected to reverse in the following years due to increasing global trade tensions.
Additionally, forecast annual CPI inflation for the year ending March has been adjusted up to 2.3%, influenced by the recent depreciation of the New Zealand dollar, which is likely to increase the cost of imported goods.
Westpac’s economic insights
Complementing the NZIER’s forecasts, Westpac’s senior economist, Michael Gordon (pictured right), reflected on the economic developments of 2024 and provided insights into the upcoming year.
The December quarter of 2024 saw a modest GDP growth of 0.5%, attributed mainly to technical adjustments in data. However, Gordon is optimistic about 2025, noting improvements in retail and hospitality sectors and a positive shift in the manufacturing and services sectors, as indicated by recent PMI data.
Migration trends and housing market
Migration trends have stabilised with a net inflow, supporting demands for housing, infrastructure, and services.
The real estate market is showing signs of revival with increased house sales and a gradual rise in prices, supported by lower mortgage rates that are drawing buyers back into the market.
Looking ahead
As New Zealand navigates through these economic fluctuations, the focus remains on managing the immediate challenges while positioning for future growth.
The country’s economic resilience will be tested by internal policies and global economic conditions, with strategic adjustments expected to play a critical role in the recovery phase.
Download the NZIER report and access the Westpac insights for more details.
