It's not all Doom and Gloom!

Looking forward it’s not all doom and gloom for the New Zealand economy.

Just when the New Zealand economy was showing signs of life after a couple of years in the doldrums, in February the US launched attacks on Iran. With no end in sight, this has stopped the recovery in its tracks with NZ now facing inflation, weakening confidence and interest rate rises. That said, it is important to note that we are not facing a GFC / post pandemic scenario. Our economy has some valuable strengths which will cushion some of the negatives and drive growth through 2027 and 2028.

The Bright Spots

·        Strong Primary Sector: Export returns for dairy, meat and horticulture are performing strongly. Revenue is forecasted to reach a record $62 billion in the year to June 2026. Regions like the Bay of Plenty, Waikato and parts of the South Island are performing well thanks to strong primary industry production. In April Fonterra farmer shareholders received an average of roughly $400,000 tax free pay out from the 4.22 billion sale of its consumer brands. Some of this will no doubt be used in debt reduction but some will also be spent on farm improvements.

·        Tourism and Migration: Foreign student numbers are heading back toward pre-pandemic levels, with NZ currenting hosting over 83,000 international students. There is also a strong recovery in overseas visitor arrivals with 3.63 million arrivals in the year to March 2026 which is a 9.2% increase and about 95% of pre-pandemic levels. NZ had a net migration gain to the year ending March 2026 of 24,200. Whilst this still below historical averages of 47,000 it does highlight that departures from NZ have slowed.

·        Infrastructure & Energy: Major government and commercial projects, such as the Auckland City Rail link, ongoing highway upgrades and the energy transition will provide continued momentum.

·        Falling Borrowing Costs: The Reserve Banks move to lower the OCR since mid 2024 are gradually making an impact freeing up household and business cash flows.

·        Business are now more resilient: Over the last few years a lot of business have been trimming the fat, reducing expenses including staff levels and have delayed investment decisions. They are now in a stronger position to make long term growth plans.

Whilst the above will not provide an instant sugar rush to the economy, the recovery will be uneven. It will start in the regions before flowing into the main cities

There are still risks to keep an eye on, an uneven labour market and recent global energy shocks mean the recovery remains fragile. The American war in the Middle East which is currently the main driver of high energy costs will end one day.