New Zealand is beginning to climb out of a deep economic hole dug by last year’s sharp recession. The latest Economic Forecast Update from ASB, released today, paints a picture of cautious optimism, describing the country’s recovery as real but slow-moving, shaped by a delicate balance between local resilience and growing international uncertainty.
Gradual Rebound Takes Hold
According to ASB, the economy resumed growth at the tail end of 2024, marking the official end of the recession. The path ahead, however, is expected to be more of a “sectoral relay race” than a rapid sprint, as different parts of the economy take turns driving momentum.
“New Zealand is more Toyota Prius than Ferrari 458,” the report quips, underscoring the steady, rather than spectacular, pace of recovery.
Domestic demand is forecast to strengthen over the course of 2025, with improving household spending and rising business investment contributing to the upturn. ASB expects annual real GDP growth to reach 2.3% by year-end, but per capita gains are unlikely to emerge until the second half of the year.
Lower Rates Offer Relief, Not Rocket Fuel
One of the central pillars of recovery is interest rate relief. After peaking during the monetary tightening cycle, the Official Cash Rate is now on a downward path. ASB forecasts 25 basis point cuts in April and May, bringing the OCR to 3.25% and supporting lower mortgage and lending rates for households and businesses.
But the effects will be slow-burning. While easing rates will help household cashflows and gradually revive housing market activity, they are not expected to trigger a dramatic surge in economic activity. “Their impact on growth will be steady rather than explosive,” ASB’s Chief Economist Nick Tuffley notes.
Exports Lend a Vital Boost
New Zealand’s export sectors are providing some of the strongest tailwinds. Dairy incomes have rebounded sharply, with favourable production conditions boosting revenue by around $5 billion compared to the previous season. Beef exports have also surged, thanks in part to a “US love of hamburgers” that has kept demand high despite trade tensions.
Tourism continues its slow but steady recovery, with Chinese visitor earnings showing encouraging gains. However, the outlook remains vulnerable to any cooling in global growth that might weigh on international travel.
Domestic Headwinds Persist
Not all sectors are participating equally in the rebound. Net migration, which had provided a significant post-COVID boost, is now cooling. The moderation is expected to weigh on labour markets, consumption, and housing demand in the months ahead.
Meanwhile, the construction sector remains subdued, lagging behind the broader recovery. House prices are still about 15% below their 2021 peaks and, though expected to lift about 5% this year, the rebound is tempered by a high stock of listings and an unsettled job market.
Productivity remains another drag. ASB highlights the country’s continued underperformance in output per worker as a longer-term concern that could limit growth potential and competitiveness.
Trump’s Tariff Gambit Clouds Global Outlook
On the global stage, new trade policies under the Trump administration have injected a fresh dose of uncertainty. The US has already imposed tariffs on imports from China, Mexico and Canada, with further measures expected as early as April. The implications for New Zealand are potentially serious, both directly and indirectly.
The US is New Zealand’s second-largest export market, accounting for nearly $9 billion in goods exports in 2024 — much of it meat, dairy and wine — and $7 billion in services, including tourism and technology. A direct hit from tariffs on these exports could dent returns, while broader global trade fragmentation may suppress demand elsewhere.
Preliminary analysis suggests potential hits to New Zealand’s GDP could range from 0.1% to 0.8%, depending on the scale, duration, and geographic spread of tariffs. A tit-for-tat escalation in global trade barriers could further disrupt the already fragile recovery.
Eyes on China and the Global Chessboard
New Zealand also finds itself caught in the crosscurrents of China–US tensions. While China remains a key trading partner, with a $3.5 billion surplus, any slowdown there — or worsening relations between the global superpowers — could reverberate through New Zealand’s export-reliant economy.
The ASB report makes it clear that New Zealand’s small and open economic model leaves it particularly vulnerable to shocks from global trade frictions. “Anything that impedes frictionless trade and capital flows is unlikely to be good news,” the report warns.
A Cautious Path Ahead
As 2025 unfolds, ASB advises a measured outlook. Domestic fundamentals are improving, but the scars from 2024’s recession are still visible, and global headwinds could easily derail the nascent recovery. Households are still grappling with high prices despite easing inflation, and business sentiment remains sensitive to international developments.
The report concludes that while recovery is underway, it is far from complete. Still, “There is light at the end of the tunnel,” ASB notes.