The clearest signal is coming from manufacturing. The BNZ-Business NZ Performance of Manufacturing Index (PMI) jumped to 56.1 in December, up sharply from 51.7 in November. Any reading above 50 signals expansion, but this result stands out. It is the strongest PMI reading in four years, and well above the long-term average of 52.5.
Crucially, this does not look like a one-off. New orders had already been improving, and in December they surged to a very strong 59.8. Every major sub-component lifted above its long-term average, while production and employment are now following new orders higher – a classic early-cycle sign that momentum is building. Manufacturing tied to construction recorded one of the largest gains, which is particularly encouraging.
New Zealand is also outperforming offshore. December’s PMI beat both the global average of 50.4 and Australia’s 51.6, suggesting the recovery here is gathering pace relative to key peers (albeit from a low base).
One weak spot remains. Micro manufacturers, with fewer than 10 staff, are still below 50. Many small firms are clearly still doing it tough. Even so, the broader picture is the strongest it has been for some time.
Services finally emerge from contraction
After nearly two years in the red, the services sector is also showing genuine signs of life. The Performance of Services Index (PSI) rose to 51.5 in December, moving back above the break-even 50 mark for the first time in 21 months. It is the strongest reading since June 2023.
The index remains below its long-term average, and some components (including new orders) are still soft. But direction matters, and the direction has clearly turned positive.
When combined with the strong PMI result, the combined Performance of Manufacturing and Services Index is now signalling firmly positive GDP growth into the end of 2025.
Importantly, the recovery is broadening. Manufacturing and construction strength is now being joined by the much larger services sector.
Employment remains the laggard. The PSI employment index lifted to 49.6, still below 50 and marking 25 consecutive months of contraction. Labour markets typically lag activity, and other surveys suggest improvement is coming.
Other data supports the improving activity backdrop. The Quarterly Survey of Business Opinion showed a strong lift in confidence in the December quarter, with business confidence at an 11-year high.
A net 39% of firms expect economic conditions to improve, up from a net 17% previously. Hiring and investment intentions are also lifting. The caveat to all this is that it is easier for businesses to post higher confidence readings after such a tough 2025. But it is a start.
Migration pressures are easing
The migration story is meanwhile becoming less extreme. Annual net migration was 10,700 in the year to November 2025, well down from 29,000 a year earlier and far below the 2023 peak. Arrivals are easing, departures are rising, and overall population pressures are cooling.
Non-New Zealand citizens continue to drive population growth, while New Zealand citizens are still leaving on net (particularly to Australia) but the pace is slowing. Monthly data shows momentum stabilising, with a small net gain in November.
Tourism still a clear bright spot
Tourism also continues to be a tailwind for the economy. Inbound arrivals reached 347,600 in November, up 26,400 on the year and are running at 93% of pre-Covid levels, led by strong gains from Australia, China and the US. On an annual basis, overseas arrivals rose to 3.48 million, with record numbers from the US. Kiwis are also travelling in record numbers, particularly to Australia and the Pacific.
Dairy sector picking up again
The dairy sector has been a pillar of strength for the economy over the past couple of years, but prices weakened through the second half of 2025 amid strong global supply.
However, there has been some cause for positivity this month – dairy prices rose by 6.3% at the first auction of the year, and were up a further 1.5% at the most recent event.
Housing remains the laggard
Not every corner of the economy is sharing in the recovery, however. The housing market is still treading water. Sales volumes improved in December, but prices were generally softer. The Reinz House Price Index fell 0.6%, leaving prices slightly lower than a year earlier. Many rural regions are doing well, but Auckland continues to lag, while Wellington is showing renewed downward momentum.
Seasonally adjusted data is a little better, with prices ticking up modestly. Even so, high listings, firm building activity and slower population growth are keeping a lid on prices.
Despite lower interest rates, this remains very much a buyers’ market. With the RBNZ signalling the end of its cutting cycle and longer-term rates drifting higher, it is hard to see anything but modest price growth at best this year.
Confidence rising – but inflation proves sticky
On that note, December’s inflation data was a timely reminder that the recovery is occurring alongside firmer-than-expected price pressures.
Consumer prices rose 0.6% in the December quarter, above expectations, lifting annual inflation to 3.1% from 3.0%. The result was also higher than the 0.2% quarterly rise assumed by the RBNZ in its November forecasts.
That strength matters for policymakers. Earlier easing in core inflation has now stalled. Trimmed mean inflation has lifted to 2.7%, and most measures now sit in the upper part of the RBNZ’s target band.
Domestic inflation (non-tradeables) is running at 3.5%, above historical averages and above the RBNZ’s expectations. Tradeables/offshore driven inflation has also hit 2.6%, the highest level since 2023.
The bottom line
After a long and difficult period, the recovery is becoming clearer and more broad-based. Manufacturing has surged. Services have finally turned positive. Business confidence is strong, despite some challenges with the “here and now”. Migration pressures are easing, and tourism remains strong. Inflation, however, is proving more persistent than hoped.
That will help the RBNZ in its endeavours to move the OCR back to more normal/less stimulatory levels.
The green shoots we flagged late last year however are now clearly visible. And for the first time in a while, the New Zealand economy is finally starting to move forward, just not without a few constraints still in place.
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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