Green shoots are visible across a growing number of economic indicators, and corporate sentiment is softening from pessimism to cautious optimism. Photo / Supplied
Green shoots are visible across a growing number of economic indicators, and corporate sentiment is softening from pessimism to cautious optimism. Photo / Supplied
THE FACTS
Business confidence is at an 11-year high, with job ads and consumer sentiment improving.
The Reserve Bank’s monetary easing has lowered the Official Cash Rate to 2.25%, supporting the economy.
Exports remain strong, with record meat exports and a significant capital return to come from Fonterra.
After two challenging years marked by recession, stubborn inflation, and weak household sentiment, fresh data suggests the New Zealand economy may finally be turning a corner. “Green shoots” is a well-worn phrase, but right now, it feels appropriate. Business confidence is at an 11-yearhigh, job ads are lifting, construction activity is stabilising, consumers are turning more upbeat, and exporters are still benefiting from strong global demand. Together, these developments form the clearest signs yet that momentum is returning.
A key catalyst for the improving mood has been the steady monetary easing delivered throughout 2025 by the Reserve Bank. The Official Cash Rate has fallen from 4.25% in January to 2.25% today, and officials have pivoted from fighting inflation to supporting a weakened economy. While some were disappointed that last week’s cut was only 0.25%, the move was likely appropriate given the early signs of stabilisation emerging across several sectors. The Reserve Bank also indicated it may be nearing the end of its easing cycle, though it retains the flexibility to cut again at its next meeting in February should the recovery falter. Importantly, monetary policy is no longer leaning heavily against the economy, and that is helping brighten the outlook.
Businesses are also becoming more optimistic. ANZ’s November Business Outlook (aptly titled “Game On”) delivered the strongest business confidence reading in more than a decade, with 67% of businesses being optimistic. Businesses are still experiencing inflationary pressures, but crucially, improved sentiment is aligned with actual increases in recent activity. It is notable that historically, surges in business confidence have preceded actual economic turning points by six to nine months.
The labour market is also showing signs of stabilisation. Recent data from jobs platform Seek showed that while applications remain high, job listings were up 1% in October (making for four consecutive months of growth), and are up 7% on last year. Stats NZ has also reported that filled jobs were steady in October after declines earlier in the year. The Monthly Employment Indicator, drawn from income-tax records, is one of the most reliable indicators of the number of people actually in work. The data suggests the labour market is no longer deteriorating, an important early sign in any recovery.
Consumers, who have been under intense pressure from high interest rates and rising living costs, are also becoming more optimistic. The ANZ-Roy Morgan Consumer Confidence Index rose from 92.4 to 98.4 in November, its highest since June. Forward-looking sentiment has been particularly strong – the future conditions index jumped to 106.8, and a net 21% of respondents expect to be better off next year. Perceptions of the broader economic outlook have improved.
Retail spending data also supports the improved mood. Third-quarter retail volumes were much stronger than expected, rising 1.9%, the largest increase since December 2021. The improvement was also broad-based, with 14 of the 16 regions recording higher retail sales values than in the June quarter. It is also telling that interest-rate-sensitive categories led the turnaround, with motor-vehicle and parts retailing up 7.2% and electrical and electronic goods retailing up 9.8%. The general picture was of cautiously improving consumer activity. With around 40% of mortgages repricing over the next six months, many on to lower rates, household budgets should continue to improve through 2026.
The housing and construction sectors are also showing signs of stabilisation. The number of new homes consented rose 6.2% to 35,552 in the year to October. On a seasonally adjusted basis they were down 0.9% during the month, but this followed a 7.3% rise in September. Given the sector’s significant contribution to economic output and employment, any improvement here is especially important.
Manufacturing is emerging from a lengthy period of weakness. The BNZ–Business NZ Performance of Manufacturing Index rose to 51.4 in October, up 1.3 points from September and marking the fourth consecutive monthly expansion. The share of negative comments from respondents fell to 54%, with firms reporting improving demand, seasonal uplift, new customers, and stronger forward orders – suggesting momentum is beginning to build again.
However, not all parts of the economy are recovering at the same pace. The services sector, New Zealand’s largest employer and a major driver of domestic activity, remains under pressure. The BNZ–Business NZ Performance of Services Index came in at 48.7 in October, marking 20 consecutive months in contraction. Demand is subdued and margins are tight across service-based industries. It serves as a reminder that while pockets of the economy are improving, others remain stuck in a more challenging environment.
Exports continue to be a major source of resilience. Global demand for New Zealand dairy, meat, fruit, wool, forestry, and seafood remains firm, with meat exports hitting a record $10 billion in the year to October. The recent removal of US tariffs on all beef imports will further support Kiwi beef farmers, improving price realisation and competitiveness in one of New Zealand’s most valuable markets. While dairy prices have softened this year, a significant boost is on the horizon in 2026 from Fonterra’s planned $3.2b capital return, the largest one-off cash injection into rural New Zealand in history, with clear flow-on and trickle-down benefits for the broader economy.
Some New Zealand corporates are beginning to notice these improving economic shifts. Freightways (a name held in Generate’s funds) is a bellwether for domestic activity given its exposure to courier volumes, logistics and information management. The company recently said that the New Zealand economy was no longer a headwind. Several retailers have noted improved foot traffic and higher transaction values compared with mid-year levels. Construction-adjacent firms are reporting stronger inquiry pipelines as mortgage rates fall. Export-aligned companies are experiencing firmer demand, while tourism and hospitality operators report cautiously improving forward bookings. Across several sectors, the message is similar: conditions are not booming, but the momentum is shifting away from contraction towards stabilisation and early expansion.
Taken together, these developments suggest a genuine turning point may be emerging. Business activity is improving, employment is steadying, consumer sentiment is lifting, construction is stabilising, manufacturing is finding its footing, and exports are powering ahead – with rural confidence set to benefit from a major capital injection. While the services sector remains weak, highlighting that the recovery is still uneven, monetary policy is now geared toward supporting rather than restraining growth, helping to reinforce the upturn.
The recovery is still early and not without risks, but the direction of travel has clearly shifted. Green shoots are visible across a growing number of indicators, and corporate sentiment is softening from pessimism to cautious optimism. If these early gains continue to build, New Zealand could be on the cusp of its first genuine upswing in years.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
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