ASB economists have published a new set of forecasts which see a tepid recovery under way.
“If economic recoveries are cars – New Zealand is more Toyota Prius than Ferrari 458,” wrote ASB chief economist Nick Tuffley in
Why NZ’s economic recovery feels more Prius than Ferrari - ASB economist
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New Zealand's economic recovery is no Ferrari – it's more Prius, says ASB.
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They would soon plateau at their new “normal” level, although that would be higher than what New Zealand enjoyed in the 10 years leading up to the pandemic.
“Their impact on growth will be steady rather than explosive – though they will markedly improve the cashflows of home borrowers over the year,“ he said.
The other bright spot was the boost that exports were giving the economy.
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Dairy incomes had strengthened, beef farmers were benefiting from a US love of hamburgers, and tourism earnings continued to recover, he said.
The bad or “not-so-good” news was that net migration flows were cooling, reducing a key tailwind for the economy.
Construction was also lagging behind the sluggish property market in turning up.
Productivity growth remained lacklustre, further restraining New Zealand’s capacity to grow, Tuffley said.
“The ‘ugly’ is what Donald Trump’s trade policies are doing to global uncertainty and growth,” he said.
“Much is still unclear, including how sizeable and widespread the US tariff action will be and whether this will court a retaliatory response.”
Where New Zealand ended up depended a lot on the fortunes of China, the US itself, and the extent to which New Zealand was dragged into the trade war mud, he said.
Tuffley stressed that the economy was “on the mend”.
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“But domestic drivers point to a moderate pace, and global developments could dampen the recent good fortunes of New Zealand’s export sectors.”
New Zealand households had found the going tough as the economy worked off excesses built up over Covid-19, he said.
“However, there is light at the end of the tunnel.”
ASB sees annual GDP growth coming in at 2.3% for the year to December and unemployment peaking at 5.2% in the June quarter before falling to 4.8% by the end of the year.
But they warn inflation may rise in coming months.
“Over the next couple of years, we expect inflation to oscillate around 2.5%, slightly above the 1-3% inflation target midpoint,” Tuffley said.
Last week, Westpac economists also upgraded their forecasts, lifting the GDP outlook for New Zealand.
“Following stronger than expected growth at the end of 2024, we’ve made a modest upwards revision to our forecast for GDP growth over 2025,” said Westpac chief economist Kelly Eckhold.
“We now expect the economy to grow by 2.6% this year (previously we forecast a rise of 2.5%).”
The overall picture of rising inflation and a strengthening economy was consistent with Westpac’s earlier view that the end of the easing cycle is coming once the Official Cash Rate (OCR) reaches 3.25%, he said.
“We don’t think the RBNZ [Reserve Bank of New Zealand] will act on the last 25-basis-point cut to 3% that had been partially indicated in their February forecasts – and recent stronger activity and inflation indicators only make the case for that view stronger.
“Plenty of risks remain around that outlook, given trade policy uncertainties, the growth path of the economy and of course the transition of leadership at the RBNZ.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up for his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.
