ASB and Westpac NZ offer their insights
The construction sector in New Zealand experienced significant setbacks in the final quarter of 2024, with Building Work Put in Place (WPIP) falling by 4.4%.
This decline, noted by both ASB and Westpac economists, extended across residential and non-residential sectors and was more severe than initially forecasted.
Construction downturn across sectors amid economic challenges
Residential building work declined by 4.9%, now 25% below its peak in Q3 2022.
Non-residential sectors weren't spared either, with a 3.1% decrease, consistent with previous quarters, reflecting a broader downturn in commercial activities.
The impact was compounded by restrictive financial conditions, high building costs, and a reduction in capital expenditure by businesses.
Construction sector faces challenges despite economic growth
Nick Tuffley (pictured left), ASB’s chief economist, highlighted the broader economic expansion in Q4 2024 but stressed the construction sector’s continued struggles.
Anticipating a stabilisation and recovery by the second half of 2025, Tuffley cited supportive measures such as anticipated OCR cuts which could help alleviate some pressure on the sector.
Construction sector nears rurning point
Satish Ranchhod (pictured right), senior economist at Westpac NZ, expressed a cautiously optimistic outlook, suggesting that the construction cycle might be nearing its trough.
With residential consents stabilising and financing costs decreasing, there is an expectation of gradual recovery, particularly in housing developments, by late 2025.
However, the recovery in the commercial sector will likely be uneven, with stronger performance in industrial and office developments compared to the retail and hospitality sectors, which continue to face challenges.
Construction’s impact on New Zealand’s economy
Both ASB and Westpac anticipate that these sectoral trends will influence the overall economic performance, with GDP growth projections modestly positive at 0.3% for the December quarter.
This forecast is aligned with potential improvements in retail sectors, yet tempered by the construction sector’s lag.
Interest rates and economic trends shape construction outlook
As interest rates continue to decline, economic conditions may foster a more favourable environment for new constructions and developments across New Zealand.
