New Zealand Institute of Economic Research (Inc)
Media release, 27 May 2025
For immediate release
NZIER Quarterly Predictions, June 2025
The New Zealand economy remains on a fragile path to recovery, supported by lower interest rates and improving household sentiment. However, recent volatility in global markets following the US-China tariff conflict has heightened uncertainty, posing fresh risks to New Zealand’s growth outlook.
Domestic conditions remain subdued, with weak demand continuing to weigh on business activity despite improved confidence. The NZIER Quarterly Survey of Business Opinion (QSBO) shows firms are cautiously optimistic. However, many are holding off on investment and hiring decisions until they have stronger conviction about a sustained recovery in demand. Over 60 percent of firms report weak sales as their primary constraint – highlighting that soft demand remains the key challenge rather than labour shortages.
Lower mortgage rates offer relief for households
The easing in interest rates has begun to flow through to households. With over half of New Zealand mortgages due for repricing in the coming six months, many households will likely face further reductions in mortgage repayments. This is expected to underpin a continued recovery in retail spending, though the weak labour market continues to temper the improvement in consumer confidence.
Meanwhile, the recovery in construction demand remains uneven across regions, with consent issuance data pointing to ongoing softness in residential construction demand. More broadly, businesses are deferring investment in the face of heightened uncertainty and subdued profitability despite falling borrowing costs.
Global tensions cloud the outlook for exporters
Our QP Special Feature this quarter assesses the implications of trade tensions stemming from the US, particularly with China, on the New Zealand economy. As New Zealand’s two largest export markets, trade policy shifts between the US and China carry downside risks and potential opportunities. While demand for New Zealand dairy and meat exports remains strong in key regions, sectors like forestry and aluminium are already experiencing price pressures due to global uncertainty, particularly given the exposure of these commodities to investment demand.
Recent market volatility has intensified expectations of further monetary policy easing. We forecast the Reserve Bank of New Zealand will lower the Official Cash Rate to 3 percent by July to help support demand. To the extent we see downside risks to the global growth outlook, there is the potential for further monetary policy easing beyond this.
Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.
For further information, please contact:
Christina Leung, Deputy Chief Executive (Auckland) & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985
