Interest rates might have a bigger impact on the property markets, economist says
US President Donald Trump is making good on his election promises to impose tariffs, sparking what could turn into another international trade war.
On Sunday, the US president said he would announce a new 25% tariffs the following day on steel and aluminium imports into the US. Trump has already announced sweeping 25% tariffs on its neighbour Mexico and Canada, in addition to a 10% levy on all Chinese products entering the US. In the case of Mexico and Canada, the tariffs have been delayed as the US commander in chief continues to wheel and deal.
But on the other side of the planet, many Kiwis wonder what impact tariffs will have on their own economy. After all, in 2024, New Zealand exported approximately $9 billion worth of goods to the US. That makes the US the second biggest export destination behind China, according to Stats NZ.
"For New Zealand, this is a negative economic shock overall," Kelly Eckhold, chief economist at Westpac NZ, told New Zealand Adviser.
While Eckhold said New Zealand has yet to feel the effects, the most tangible and immediate consequence will be the exchange rate of the New Zealand dollar, which he said has been falling against the strong US dollar.
In addition, he added that exporters will have to cope with weaker demand from countries that are subject to tariffs.
"And New Zealand exports a lot of stuff to the US," Eckhold said. The list includes meat, dairy, wine, and machinery.
"Those exporters who are using manufacturing facilities in Canada or Mexico or China, these measures are going to cost them," Eckhold said.
This puts even more pressure on a country that has started 2025 in a recession with rising unemployment rates and falling property values. What this means for New Zealand's property market is uncertain.
"It's too early to tell," Eckhold said. "The tariffs are currently in a state of flux. The reality is that we just don't know how all of this is going to pan out. Will deals be done? Or will the trade war intensify? We just don't really know.”
New Zealand's property markets
Westpac maintains its prediction that the Reserve Bank of New Zealand will likely cut the official cash rate at this month's meeting. Eckhold is anticipating an official cash rate cut of 50 basis points, or 0.5% at RBNZ's Feb. 19 meeting.
He added that the Reserve Bank's decision on interest rates will be the most likely driver influencing New Zealand's property markets.
"With the rates falling, as long as that comes to play, then it will have a positive impact on the housing market," Eckhold said.
"But after that things get a lot more uncertain and we think [the bank] will signal for a lot more cautious approach," he said. "For most central banks, they're going to take a more cautious approach in the period ahead."
