New Zealand’s economy suffered the biggest hit in the world in 2024, HSBC says, but there are signs that conditions are starting to improve.
HSBC chief economist for New Zealand and Australia Paul Bloxham made headlines in 2014 when he described New Zealandas a “rockstar economy”.
He said in an update on Friday that was far from the case at present.
Interest rate increases in response to post-pandemic inflation had pushed the country into a recession and unemployment had increased sharply. Across the developed world, HSBC’s estimates suggest New Zealand’s economy had the largest contraction in GDP in 2024.
But he said that recession had lowered inflation, which had allowed the Reserve Bank to cut rates.
“We see a further 125 basis points of cuts by Q3 2025, taking the cash rate to 3%, and expect this to pump-prime a strong growth upswing. After a particularly tough year in 2024 – we estimate that GDP fell by 0.5% that year – we forecast GDP growth lifting to 1.8% in 2025.”
He said there were already some signs of improvement.
Paul Bloxham, HSBC chief economist for Australia and NZ, predicts New Zealand's unemployment rate will peak and start to fall later in 2025.
“Business and consumer surveys have both improved, while card spending figures have also risen. The housing market appears to be stabilising as mortgage lending has increased. While weakness in the jobs market is likely to still weigh on activity in the near term, we see the unemployment rate peaking and starting to fall later in 2025.
In short, New Zealand’s outlook in 2025 is more positive than in recent years. However, the longer-term outlook is more challenged by weak productivity. Although this is not a new challenge, productivity outcomes have been notably subdued post-pandemic.
Policymakers ought to have a greater focus on “growing the economic pie”, said Bloxham, and this requires a bold reform agenda and private sector support.
He said those reforms should reduce regulatory obstacles, improve competition and focus on attracting foreign investment, alongside targeted use of the public sector balance sheet.
“A focus on improving New Zealand’s ‘growth engines’ would also help. We see agricultural and services exports as two key areas which can further support the economy.”
Prime Minister Christopher Luxon announced this week the Government would set up a foreign investment agency aimed at boosting productivity and innovation.
He said it would be modelled on Irish and Singaporean best practice, seeking investment into banking and fintech, manufacturing, private sector growth, and critical infrastructure including roading and energy.
Bloxham said more openness to foreign investment was important.
“[It] is a necessary part of supporting New Zealand’s growth prospects and putting it back in a pathway to rock star status.
“Policymakers need to be clearly focused on trade opportunities and on supporting those by creating an economic environment where local and international investors are willing to deploy capital.”
