New Zealand’s current economic climate has been described as “chilly”, according to a new report by Westpac, but there is optimism for 2025’s outlook.
The bank released its Regional Roundup report this morning, summarising feedback from households and businesses across the country.
Westpac described the current economic temperature as “chilly” with its clients reporting ongoing challenges in all regions.
It said one comment given to the bank noted there was “still a lot of pain out there”.
However, the report said things were starting to change, with feedback suggesting “those frosty conditions are showing early signs of thawing, and there is growing optimism about the outlook for the economy over 2025”.
Westpac said a number of businesses had noted demand was flat or mixed over recent months.
“Although those comments are a long way from signalling a return to trend rates of growth in the economy, they are an encouraging change from the very downbeat comments we heard a few months ago.”
Retail, hospitality
In the household sector, the report found families had reigned in their spending, as the cost of living continued to bite.
“That’s seen widespread falls in retail sales and particular weakness in the hospitality sector,” Westpac said.
Construction, manufacturing
It also saw a “continued softness” in sectors like construction and manufacturing, likely caused by declines in the amount of work being finished and forward orders.
Unemployment was also a big issue being faced by those giving feedback.
“Very few firms told us they were looking to take on new staff and many have been reducing the size of their workforces,” the report said.
“In some cases, businesses were simply not replacing staff who left, but we also heard widespread reports of restructuring. Those conditions have seen unemployment pushing higher right across the country.”
Tourism, agriculture
Continued higher international visitors and a “firming outlook” for New Zealand’s key agricultural exports were also “bright spots” for the economy.
It said feedback on cost pressures was also “less worrying than it has been for some time”.
“Although costs aren’t dropping back, reports of large increases and the related pressure on margins have become less prevalent (though there are some ongoing pain points, like the cost of insurance and local council rates).”
Westpac said the “most notable” change since its previous survey, was that the worst was “behind us”.
Interest rates
“A number of businesses said that the start of the Reserve Bank’s interest rate cutting cycle was a welcome relief, and they’re optimistic that the fall in interest rates will help to stoke demand over the year ahead.
“All of this is very consistent with our forecasts for continued soft growth over the remainder of this year, with a gradual firming in activity taking hold over 2025.”
Regions
Across the regions, the bank said feedback saw those in the South Island “less negative” than those in the north.
The reason for this was likely improving conditions in agricultural industries like dairy and horticulture, which saw export prices “pushing higher” over recent months.
“There’s also been an ongoing recovery in international visitor numbers, which has been supporting spending in areas like Queenstown.
“Even so, conditions are still mixed and many businesses we spoke to have continued to report weak demand.”
The North Island was described as “downbeat”, with reports of falls in spending and job losses.
Feedback described a “notable softness” in Wellington, with restraint in government spending and public sector job losses forcing confidence to low levels in the city. Economic confidence in the region had dropped to –38.
“However, we’ve also seen tough conditions in many other regions, with businesses in the retail, hospitality and construction sectors all reporting falls in sales and job losses.”
