NZ Economy: Recovery Pushed to 2026, Major Bank Warns

Regional performance mixed as confidence lags

New Zealanders holding out for an economic upturn may need to wait another year, with a leading economist suggesting meaningful improvement is now likely a 2026 prospect. Kiwibank’s latest analysis reveals modest gains nationwide, but overall economic health scores remain subdued.

South Island Outperforms

The national economic health score has nudged upwards from a low of three to four out of ten. Regions like Southland and Otago are currently leading the pack, achieving a five out of ten. Otago’s performance has been bolstered by a rebound in international tourism and improved employment figures.

Wellington’s Woes Persist

In contrast, Northland, Taranaki, and Gisborne have seen their economic indicators decline. Taranaki experienced the most significant drop in employment, falling by 8%, while Northland reported a double-digit decrease in building consents. Retail sales across most areas continue to trail their decade-long averages, reflecting weak household confidence.

Wellington, in particular, recorded the steepest annual economic decline at -3.3%. While its score improved from two to three out of ten, the capital city is described as having a pervasive sense of pessimism.

“Wellington is just more pessimistic. It’s gone through a lot in recent years. You can see it in their activity, you can see it in the housing market. You can see it in the economy, the city has been brought to its knees and it’s been struggling to shake the pessimistic vibe.”

—Jarrod Kerr, Chief Economist, Kiwibank

Jarrod Kerr added that both Auckland and Wellington remain well below average economic performance levels. He noted that while some regions are showing improvement, the overall picture is not robust. “If you look across the regions, some of them have gone backwards and others are improving but it’s not good.”

Australia’s Economy Stronger

Comparing New Zealand’s situation to its trans-Tasman neighbour, Kerr stated that Australia’s economy is considerably stronger. The unemployment rate in Australia is hovering near 4%, significantly lower than New Zealand’s rate of over 5%.

He attributed some of New Zealand’s economic challenges to the Reserve Bank’s more aggressive interest rate hikes compared to Australia’s approach in tackling inflation. Both central banks, he suggested, may have overstimulated economies during the Covid-19 period, leading to the subsequent need for stronger measures.

Kerr pointed out that the Reserve Bank of New Zealand maintained the official cash rate at 5.5% for an extended duration to combat inflation, a strategy that deliberately induced a recession. “We had a really bad recession last year, which the Reserve Bank openly orchestrated, they said ‘look, we need a recession to get inflation back down’. The Australians didn’t orchestrate a recession, they didn’t slam the economy into the floor.”

Kiwibank had initially hoped for a more noticeable economic recovery by this year. However, Kerr now anticipates the turnaround to be more evident in 2026, as more individuals and businesses refinance at lower interest rates. New Zealand’s export sector, for example, saw a 5.5% rise in export volumes in the first quarter of 2024, according to Stats NZ, indicating some green shoots, though widespread recovery remains a future prospect.

As of May 2024, New Zealand’s annual inflation rate stood at 4.0%, a decrease from the previous year, but still above the Reserve Bank’s target band.