Westpac reveals economic trends and predictions
Despite facing significant economic challenges and a mid-year downturn in 2024 with inflation easing towards 2%, New Zealand's economy is showing signs of recovery as 2025 progresses, said Kelly Eckhold (pictured above), chief economist at Westpac NZ.
“We are now turning the corner towards growth, and there are promising signs of recovery for 2025,” Eckhold said, highlighting the mixed conditions often seen at such turning points.
Economic ups and downs
While some sectors like household spending and tourism are showing improvement, others such as manufacturing and construction remain weak.
However, the primary sector, particularly dairy, is expected to achieve record-high incomes, benefiting from a combination of lower interest rates, reduced on-farm costs, a lower NZ dollar, and high world prices.
Global influences and local implications
A new trade war initiated by US President Donald Trump’s policy changes presents significant risks, with uncertain outcomes for New Zealand.
On Sunday, Trump announced new 25% tariffs on steel and aluminum imports effective Monday, following earlier tariffs of 25% on Mexico and Canada and 10% on Chinese goods, with North American tariffs delayed amid ongoing negotiations.
“There’s much uncertainty on how this will play out, but it won’t be good for New Zealand," Eckhold said.
Despite these challenges, a lower New Zealand dollar and lower interest rates are expected to buffer the local economy against some of the negative impacts.
Gradual recovery with persistent risks
The outlook for 2025 and beyond suggests a gradual economic recovery, assuming that trade uncertainties do not severely impact economic activities or trade terms.
Westpac NZ forecasts a cautious approach to further OCR cuts, with the potential for both upside and downside risks in the coming years.
Support for housing and household spending
Lower interest rates are likely to support housing markets and household incomes, with net migration providing additional support. Inflation is expected to stabilise between 2-3%, influenced by soft commodity prices and the weak exchange rate, Eckhold said.
Long-term market movements
Phases of market activity
The New Zealand property market and broader economic activities have gone through distinct phases, from steady rises between 2014 and 2019 to sharp increases during the COVID-19 pandemic and a period of correction from 2022 to 2024.
Looking ahead, Westpac NZ anticipates a strengthening of the housing market and a cautious yet positive economic growth trajectory.
Adapting to a changing environment
As New Zealand navigates through these complex economic times, strategic decisions by businesses and policymakers will be crucial in maintaining stability and fostering growth.
The economic landscape is expected to evolve with a focus on sustainability, affordability, and adapting to new working environments.
For a detailed analysis and more insights, refer to the full Westpac NZ Economic Overview.
