NZ’s path through the gloom

Downbeat assessments of the New Zealand economy, in my view, may be overdone. I’ve just spent a week in New Zealand and was surprised by the gloomy tone.

There’s no doubt the numbers aren’t great, but they're better than 2024. The economy went backwards in that time, but growth data since then has been on the up. NZ has certainly taken a step forward.

ANZ Research expects three more interest rate cuts from the Reserve Bank of New Zealand in this cycle. There's enough evidence the economy needs the help.

But the negative assessments don’t entirely align with what I saw on my trip, and I expect 2026 to bring a welcome surprise for the economy.

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Uncommon

It's uncommon for me to come to NZ and hear that Australia’s economy is doing better, but the data does support that view. In the first half of 2025, the rate of growth in Australia has been roughly double that of NZ.

One thing I was told was I needed to go further south to get a proper assessment of NZ’s fortunes. The agriculture-related parts of the economy, particularly in the South Island, are in much better shape than elsewhere. High commodity prices, particularly for dairy, are providing a fillip that is outrunning costs.

Costs, however, were a theme of the trip — constrained resources, infrastructure challenges, and dealing with bureaucracy. These are common across economies.

Housing was also a frequent topic of discussion, much like it is in many advanced economies. We need to keep facing into that challenge until we find better solutions.

Another theme, which is unique to NZ, is migration. Plenty of small and middle-sized economies received a wave of inward migration after the pandemic, and NZ was no exception. It's a wonderful place. Who wouldn't want to live there?

But then came an outflow to Australia. That's not unexpected, given where the labour markets are. The NZ unemployment rate is about a per cent above Australia, and that would normally result in some leakage. But it is a contributor to the economy’s capacity problems, at least in the labour market.

On the bright side, that is helping keep the labour market a little bit more balanced. And in general, I think there’s more of a bright side in NZ than many are giving it credit for.

Richard Yetsenga is Group Chief Economist and Head of Research at ANZ