Agriculture expected to drive growth in 2025
Westpac’s newest analysis of regional economies suggested the agricultural sector will be a key pillar of growth this year, as lower interest rates take time to lift household spending and business activity.
The bank’s regional heatmap ranked no areas higher than “cool”, the midpoint on a five-point scale ranging from “frosty” to “hot.”
“Regions with strong rural backbones or links to the international tourism sector are starting to warm up, especially those in the south including Canterbury, Otago, and Southland,” said Westpac senior economist Satish Ranchhod (pictured).
Only four regions rated cool; Waikato and Northland frosty
According to the Westpac report, just four regions—mainly in the South Island—earned a “cool” rating, while five others, including Auckland and Wellington, were labelled “cold.”
The lowest rating of “frosty” was given to Waikato and Northland, reflecting ongoing economic challenges in these areas, RNZ reported.
The rankings were based on a combination of key indicators, including employment, house prices, building consents, retail sales, and consumer confidence.
Urban areas struggling to warm up
“It’s an uneven recovery, with urban areas feeling a real economic chill,” Ranchhod said, noting that lower interest rates have yet to make a significant impact.
The Reserve Bank has implemented multiple OCR cuts since August, totalling 200 basis points, bringing the rate down to 3.5% as of April, with economists forecasting a further reduction to 2.75% by the end of the year.
Ranchhod said that conditions remained tough overall, though some business sentiment is starting to improve.
“Many businesses also told us that while conditions remain challenging, they aren’t going backwards like they did in recent years,” Ranchhod said. “More businesses are also starting to feel optimistic about where the economy was headed over the coming year, thanks mainly to the easing in borrowing costs.”
However, the latest MintHC Business Insights update painted a more cautious picture, highlighting a notable decline in confidence across New Zealand businesses. The April snapshot indicated rising concerns around economic stagnation, political instability, and global trade tensions.
Living costs still high, job market softening
Despite inflation easing back within the Reserve Bank’s target band, cost-of-living pressures continue to weigh on households and businesses.
“Households [are] still feeling the squeeze on budgets, and businesses [are] reporting higher costs and pressures on their profit margins,” Ranchhod said.
The jobs market remains fragile, with some firms reducing staff and skilled workers heading to Australia, particularly in construction-related sectors.
Trade uncertainty dampens business confidence
Ranchhod also flagged the escalating global trade tensions as a key source of uncertainty, with businesses reluctant to make major investments in the current climate, RNZ reported.
“That uncertainty is one factor why businesses are likely to be cautious about major capital spending for a time yet,” he said. “The related drop in the New Zealand dollar has been welcomed by exporters but is adding to costs for other businesses.”
