Falling inflation and interest rates will lead to more confidence among consumers and businesses. Photo / NZME
Falling inflation and interest rates will lead to more confidence among consumers and businesses. Photo / NZME
The second half of 2025 will mark a turning point in New Zealand’s economic recovery as we put inflation and recession behind us, according to Kiwibank’s latest outlook.
“Looking ahead to 2025, it’s not just another year — it’s a turning point,” Kiwibank economist Sabrina Delgado said.
Kiwibank’s report titled‘Alive in 25′ or ‘Thrive in 25′ said after a prolonged two-year recession, a more optimistic picture for the year ahead was emerging.
But there will be pain points to come on the road to recovery, with unemployment to worsen and geopolitical tensions threatening.
“Twenty-twenty-five will be a year of two halves. The first half may feel like more of the same, but by mid-year, the tide will finally turn,” Delgado said.
“For businesses, it’s a time to shift from survival mode to growth. For households, it’s an opportunity to regain confidence, rebuild budgets, and move forward with hope.”
Driving improved sentiment has been the fall of inflation and interest rates.
“Through a lot of pain, aggressive rate hikes have slain the inflation beast,” the report said.
“It’s all about confidence,” Delgado said. “We’ve seen a marked lift in sentiment since the RBNZ began cutting rates. Businesses are raising their heads and looking to the future, not just facing immediate struggles.”
There’s also hope for a recovery in the housing market next year, with prices forecast to climb 6% in the next year, Kiwibank said.
“Housing has been sluggish for too long and this year, in particular, we’ve experienced a muted housing market. House prices have virtually traded sideways in the past 18 months,” Delgado said.
“Nonetheless, we maintain our long-held forecast of ~6% house price growth next year.”
Delgado said falling interest rates and the return of the investor would provide tailwinds for the housing market in 2025.
But despite the green shoots, there’s still some pain on the unemployment front with hiring grinding to a halt, Kiwibank said.
Delgado said the labour market — which often lags the broader economy — remains weak and was feeling the weight of the recession.
The labour market remains weak as hiring grinds to a halt and unemployment continues to rise. Photo / Dean Purcell
Unemployment was sitting at 4.8% for the September quarter, but remains below the historical average of above 5% in the past 20-30 years.
“The labour market… takes time to adjust. As the economy picks up, we’ll see a slow and steady improvement.
“Our forecasts for the labour market are little changed with unemployment set to peak at 5.3% in the first half of next year.”
The report also said the global outlook was cautiously positive, however, geopolitical tensions and trade disruptions could unsettle that.
Falling international interest rates and easing inflationary pressures were bolstering global recovery.
“As a small and open economy, stronger trading partner growth is critical to support recovery, but global risks loom,” Delgado said.
By the year’s end, Kiwibank expects economic growth to reach 2.2%.
“This year has been a topsy-turvy time. But we’re putting 2024 behind us and looking to 2025, which we’re predicting will be a better year for businesses and consumers,” Delgado said.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
