Economists say 2025 will be a 'year of two halves'.
There’s hope New Zealand’s economy will continue to improve slowly, despite predictions of a slow start to 2025.
Business optimism and inflation falling to 2.2% are said to be contributing to the idea that the country’s on the mend after years of fiscal uncertainty.
Yet it could be a longer road than expected to get to the light at the end of the tunnel – with the Government’s books last month painting a grim picture for the years ahead.
NZ Herald Business Editor-at-large, Liam Dann, told The Front Page that Treasury’s Half Year Economic Fiscal Update (Hyefu) showed the economy’s been in bad shape.
“The Government isn’t taking enough tax or as much tax as it had expected, which means that they have an even bigger challenge in front of them in terms of getting the country’s books back into surplus or back in good shape.
“That means they have to make some really hard choices about what they do to promote growth, and sometimes those two things clash,” he said.
And the Government’s already off to a roaring start in terms of a laser focus on growth.
Prime Minister Christopher Luxon focused on it in his State of the Nation speech – saying that “economic growth is the key to better days ahead”.
He announced major changes to the science and innovation sector and overseas investment, including establishing Invest New Zealand, a “one-stop-shop for foreign direct investment”.
“Invest New Zealand will increase capital investment across a range of critical sectors – like banking and fintech, critical infrastructure like transport and energy, manufacturing and innovation,” he said.
Dann hopes the economy progressively improves and we see the end of the recessionary cycle end in 2025.
“I hope the Government can continue with policy changes that push that along - with fair winds of a strong dairy season, and maybe a bit of life in the housing market.
“I know these are ‘old faithfuls’ that people like me often say we can’t rely on forever, but I hope they do their job,” he said.
However, Dann also predicts the speed at which New Zealand’s economy will improve will be determined by international affairs.
“Markets have been pricing in this Trump effect and making assumptions about what’s going to happen, and they’ve been assuming that if he does the tariff stuff and stimulates the economy with tax cuts, that some of that could be inflationary.
“If that’s inflationary, that has implications for the rest of the world. It means that their dollar stays stronger, and our dollar probably gets weaker, and we’ve already seen that in the past couple months,” he said.
Currently, Donald Trump is threatening a 10% across-the-board tariff on Chinese goods imported to the US and 25% tariffs on Mexican and Canadian goods, come February.
Listen to the full episode to hear more predictions about New Zealand’s economy in 2025.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.
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