A debate is raging over the state of New Zealand’s economy, as we head towards the election. Some say a recovery is well underway, while others claim it remains in crisis.
Both can’t be right, so let’s see what the data shows.
But first, some background.
When New Zealand emerged from the Covid lockdowns in 2020, the Reserve Bank had already reduced the Official Cash Rate to a record‑low of 0.25 percent and had started pumping more than $50 billion into the economy through a massive quantitative easing programme. That flood of liquidity on top of the Labour Government’s $70 billion of Covid-related expenditure sent domestic demand surging, fuelling a housing boom, and pushing inflation well beyond the Bank’s 1 to 3 percent target band.
But instead of responding quickly to bring inflation back under control, turning off the monetary tap and raising interest rates, the Reserve Bank mischaracterised the inflationary pressure as a supply chain disruption that would correct itself.
That error, which led to a further six months of stimulus, resulted in domestic demand boiling over. Inflation peaked at 7.3 percent in 2022, as living costs spiralled out of control.
When the Reserve Bank finally moved, it did so aggressively by deliberately engineering a recession — driving the OCR up to a peak of 5.5 percent and forecasting unemployment to rise to 5.7 percent.
In response to questions from Parliament’s Finance and Expenditure Committee in late 2022 asking whether the Reserve Bank was deliberately engineering a recession to combat the super-charged inflation, then Governor Adrian Orr responded: “I think that is correct. We are deliberately trying to slow aggregate spending in the economy. The quicker inflation expectations come down, the less likely it is that we have a prolonged period of low or negative growth.”
As the 2023 election approached, with the OCR choking consumer spending, Labour opened the immigration floodgates. In the year to October, New Zealand recorded a net gain of almost 137,000 migrants — the highest in our history. While the influx eased the country’s crippling labour shortage and propped up headline GDP, the sheer scale of new arrivals created an immediate housing shortage that sent rents soaring and heaped further pressure on already stretched hospitals and schools.
With the surge in rental and consumer demand adding fresh inflationary pressure, the Reserve Bank was forced to keep interest rates higher for longer. The strain was then compounded as waves of fixed‑term mortgages — originally set when the OCR was at a record low of 0.25 percent — came up for refinancing at 5.5 percent. That stripped billions of dollars out of household budgets and drove the economy into the second downturn of Adrian Orr’s “double‑dip” recession.
With a new Government at the helm, domestic inflation finally started coming back under control during 2024, with on-going OCR cuts reaching a low point of 2.25 percent in November 2025.
However, as 2026 began, the Middle East crisis sent fuel prices soaring — petrol up 27 percent and diesel an extraordinary 71 percent — driving annual inflation to 4.1 percent in the year to June.
While base inflation was only 2.9 percent if the fuel price rise was stripped out – well within the Reserve Bank’s threshold – rather than waiting to see whether fuel would stabilise, the Bank pressed ahead with back-to-back increases taking the OCR to 2.5 percent in July and 2.75 percent in September.
The post-Covid recession – engineered by the Reserve Bank but fuelled by Labour’s prolonged spending – had a disastrous impact on unemployment. By locking the OCR at a highly restrictive 5.5 percent from May 2023 through to August 2024, the Bank intentionally suffocated consumer demand, forcing businesses to cut staff costs to survive. As a result, unemployment surged from its historic low of 3.2 percent up to 5.4 percent by December 2025 – exactly in line with the Bank’s projections.
Despite the Middle East crisis helping to push unemployment higher to 5.6 percent, and net migration remaining low at 17,600 in the year to June, there are now encouraging signs that an economic recovery is finally underway.
The travel sector is experiencing strong momentum. Annual overseas visitor arrivals reached 3.7 million for the year ended June – only a fraction behind the 2019 pre-Covid peak.
Exports have reached record levels. With strong commodity prices and international demand, the total export value of New Zealand goods and services for the year ended June was a record $118 billion, well ahead of the pre-Covid level of $86 billion.
New vehicle sales have been on a strong upwards trajectory with year-to-date passenger registrations almost 11 percent higher than last year.
Investment in plant and equipment has surged, following the Government’s “Investment Boost” initiative in Budget 2025, which granted firms an immediate 20 percent tax deduction on new productive assets.
Business confidence has also improved dramatically and is now near a 12-year high.
While consumer confidence remains low, it is, nevertheless, moving in a positive direction – as can be seen in the retail spending figures in the year to June, which were 3 percent higher than last year, with early‑July transactions running nearly 5 percent ahead.
Residential building activity, which is another important economic indicator, is also trending upwards, although the housing sector as a whole is still facing serious challenges – as this week’s NZCPR Guest Commentary from Economist Tony Alexander explains:
“At the end of July, the number of properties listed for sale around New Zealand stood at 35,700 in seasonally adjusted terms. This was a 9% rise from a year earlier and the highest level of stocks since March 2015. The average nationwide stock for the past ten years has been 25,300 so the current inventory is 41% above average.
“Compared with a year ago average prices nationwide over the past three months were running 0.6% down from a year ago. But West Coast was up 3.7%, Southland 7.1, and Canterbury 3.7%. Wellington was down 4.1% and Auckland down 2.1%.
“Prices may keep falling if the 40,600 consents issued this past year – ahead 19% annually – get built at the usual percentage of over 95%.
“Supply matters and that is why the high level and rate of growth in the number of consents issued for new dwellings to be built is very important when considering what happens with prices going forward. But with mortgage rates rising and population growth below average, price growth will be constrained.”
Just as the slowdown in the housing market has brought good news for first home buyers, it is also bringing positive benefits for renters. In the residential rental sector, annual rental growth has slowed to its lowest rate in 25 years, with property indices showing national median rents sitting completely flat for months on end.
So, what are the experts saying?
The Reserve Bank Governor Dr Anna Breman says: “New Zealand’s economic recovery has most likely resumed.”
The ANZ chief economist Sharon Zollner reports: “Data this week painted a picture of an economy that continues to recover.”
Kiwibank chief economist Jarrod Kerr believes: “A recovery is underway and should strengthen into 2027.”
Westpac chief economist Kelly Eckhold argues: “This stronger expected growth recovery should be important in reducing concerns about downside risks to the economy”
ASB senior economist Mark Smith explains: “The recovery is expected to strengthen and broaden.”
And in a new report on New Zealand, the international ratings agency Moody’s concludes: “New Zealand’s economy is emerging from two years of stagnation with support from strong agricultural export prices, recovering tourism and the lagged effects of earlier monetary easing.”
Looking back, Labour’s prolonged pandemic spending and the subsequent immigration surge resulted in government debt ballooning from $58 billion or 18.6 percent of GDP in 2019 to $155 billion – almost 40 percent of GDP – by the time they left office.
They created a legacy of pain that significantly contributed to the deep domestic inflation that resulted in New Zealand’s severe economic downturn.
Indeed, it’s ironic that the ones most affected by Labour’s reckless mismanagement of the economy are those they pretend to care about the most. Lower-to-middle-income families – particularly renters or those re-fixing mortgages on tight budgets – have suffered the most through this period, with roughly 31 percent of households still dedicating over 40 percent of their disposable income entirely to housing costs.
Rather than admitting failure, Labour now wants us to believe that they are best equipped to solve the economic difficulties they created!
There’s a simple economic truth: it takes five minutes to get into debt, but decades to repay it. Repairing structural economic damage takes time, and while New Zealand is finally making progress, there’s still a long way to go.
Once they were elected in 2023, the Coalition began to rein in government spending. As well as cutting costs, they also attempted to grow the economy out of the difficulties – a strategy that had worked well when John Key took office in 2008 following the Global Financial Crisis.
But in 2008, the GFC had crushed domestic demand, allowing the Reserve Bank to slash interest rates to stimulate growth. In 2023, however, the situation was the opposite: the Bank was proactively trying to suppress domestic demand, which meant the Coalition’s early efforts to stimulate growth were met with heavy resistance.
As a result – and thanks to the legacy of Labour – not only has the country’s debt burden continued to grow to $186 billion or 41.3 percent of GDP, with an interest bill of almost $10 billion a year, which is more than the annual operating budgets of Defence, Police, Corrections, and Customs combined, but the Coalition has been criticised for not being aggressive enough in undoing the damage they inherited!
At this stage, what New Zealand needs is a new government that will focus on continuing the hard work of economic repair — not one that would indulge in reckless spending.
And that’s the problem with MMP – it’s like Russian Roulette: at some stage the coalition of the crazies will be back in power with Chloe Swarbrick as Minister of Finance in charge of the Treasury – if the Greens get their way!
New Zealand’s economy is finally starting to grow again. Year on year, annual GDP expansion has recovered to 1.5 percent, after a period of largely negative growth. Treasury’s latest forecast expects growth to strengthen to 2.3 percent in 2027 and 3.2 percent in 2028.
And the good news is that the ‘actual’ figures for the deficit and debt are better than forecast, showing the Coalition’s programme of economic repair is finally working – although there’s clearly a long way to go.
Looking ahead, since decisions about economic growth are shaped by tax settings, regulation, infrastructure, energy costs, access to capital, and the expected return on risk taking, a future government should not only be focussed on how to make sure those fundamentals are conducive to growth, but also on how to make it genuinely more rewarding to work, invest, and produce in New Zealand.
We need more companies like Gallagher, Rocket Lab, Xero, and Weta Workshops — businesses that have turned Kiwi ingenuity, technology, and capital into high value outputs that succeed on the world stage, lifting incomes for workers, shareholders, communities, and the country as a whole.
So, in answer to our original question of whether the economy is recovering or still in crisis, the consensus is that a recovery is underway, but it remains fragile. That means there will need to be serious restraint in government spending over the coming years.
As a result, election promises should be judged on whether they strengthen the foundations of growth. The key to improving living standards is not redistributing wealth but growing the economic pie so that everyone can have a bigger slice. Parties committed to expanding New Zealand’s ability to produce, export, and innovate will improve our future outlook, while those calling for higher taxes to fund extravagant spending promises risk dragging the country back into the economic mire from which we are only just beginning to emerge.
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THIS WEEK’S POLL ASKS:
*What is your view on the current state of the New Zealand economy?
1 comment:
The debate isn’t raging and the evidence is clear as day. Willis has no idea and every action she has taken has sent the economy and employment further down the gurgler. Clear as day.
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