New Zealand’s economic outlook for 2025 is cautiously optimistic, driven by a drop in inflation and an uptick in business confidence.
However, the nation faces a series of tough challenges, with fiscal deficits, international uncertainties, and the need for careful management of growth all hanging in the balance as the government moves forward.
Signs of Recovery Emerge
New Zealand’s economic recovery shows tentative signs of progress with inflation down to 2.2% and a rise in business confidence. Yet, the government faces mounting challenges, as Treasury’s latest update reveals tax revenue underperformance. “
The Government isn’t taking enough tax or as much tax as it had expected, which means that they have an even bigger challenge in front of them in terms of getting the country’s books back into surplus or back in good shape,” Liam Dann said on The Front Page.
Government’s Growth Agenda Takes Centre Stage
Prime Minister Christopher Luxon has placed economic growth at the forefront of his administration’s agenda, unveiling a series of ambitious reforms in his State of the Nation address.
Central to his plan is Invest New Zealand, a newly established agency to drive foreign direct investment in key sectors like fintech, infrastructure, and manufacturing.
“Invest New Zealand will increase capital investment across a range of critical sectors – like banking and fintech, critical infrastructure like transport and energy, manufacturing and innovation,” Luxon explained. However, while these initiatives seek to build long-term economic resilience, critics caution that striking a balance between growth and managing budget shortfalls may prove difficult.
Challenges Along the Road to Recovery
The path to recovery for New Zealand remains a steep climb, despite the government’s strategic efforts. Treasury’s reports paint a clear picture of the fiscal deficits that complicate the balancing act between promoting growth and maintaining fiscal responsibility.
Liam Dann, Business Editor-at-large, highlighted this challenge, noting, “That means they have to make some really hard choices about what they do to promote growth, and sometimes those two things clash.”
While a strong dairy season and a revival in the housing market could provide some relief, Dann warned of the risks in depending on these sectors.
“I know these are ‘old faithfuls’ that people like me often say we can’t rely on forever, but I hope they do their job,” he said.
Global Risks Could Reshape the Picture
The trajectory of New Zealand’s recovery could be heavily influenced by developments in the United States, where former President Donald Trump has proposed significant tariffs on Chinese, Mexican, and Canadian goods. These moves could fuel global inflation and put downward pressure on the New Zealand dollar, further complicating the government’s recovery efforts.
According to Liam Dann, “Markets have been pricing in this Trump effect and making assumptions about what’s going to happen. If that’s inflationary, that has implications for the rest of the world. It means that their dollar stays stronger, and our dollar probably gets weaker, and we’ve already seen that in the past couple of months.”
Cautious Optimism for 2025
New Zealand’s economic outlook for 2025 remains uncertain, but experts remain cautiously optimistic, buoyed by government reforms and the potential of traditional sectors.
Liam Dann summarised the hope of many, stating, “I hope the Government can continue with policy changes that push that along – with fair winds of a strong dairy season, and maybe a bit of life in the housing market.”