New Zealand economy starts 2025 on weak footing
Economic conditions across New Zealand remained challenging in the March 2025 quarter, with modest gains in rural areas offset by declines in urban and provincial economies, according to Infometrics’ latest Quarterly Economic Monitor.
While quarterly activity showed signs of recovery, GDP was still down 1.1% year-on-year.
“Economic activity remains subdued in the first quarter of 2025, with GDP down in every region compared to last year,” said Nick Brunsdon (pictured), Infometrics principal economist.
“Rural economies are currently New Zealand’s strongest performers, with rural area GDP down just 0.4%pa, buoyed by better prices for our dairy, meat and horticulture exports to offset difficult times in other industries. More urban areas are doing it tough, with metro area GDP down 1.2%pa and provincial areas down 1%pa.”
Rural recovery driven by strong export prices
The resilience of rural areas is being powered by a surge in primary sector returns.
Beef prices rose 15% year-on-year in March 2025, while lamb and mutton climbed 10%. Global dairy price increases have helped Fonterra maintain its farmgate milk price at $10/kgMS.
“The primary sector is set to drive the economic recovery in 2025, with higher dairy prices alone meaning a $4.5b boost to rural economies, to a record $19.3b payout,” Brunsdon said.
He warned, however, that geopolitical risks remain, particularly around recent trade policy developments in the United States.
“Ongoing uncertainty around the impact of US President Trump’s tariffs – on New Zealand and our trading partners – remains a threat,” Brunsdon said.
“Strong demand from the US is largely behind the 15% rise in beef prices that our farmers are enjoying, but the tariffs could limit this gain in the future depending on how things land. The US has also overtaken Australia as the largest source of international tourist spending in many regions, another area that could be undermined by lower US consumer spending as a result of tariffs.”
Urban centres hit by construction, manufacturing downturn
The picture is far less optimistic for urban and construction-heavy sectors, which continue to contract. Residential consents fell 3.3%, while non-residential building activity declined 7.2% year-on-year. Manufacturing and retail activity also weakened.
“Households were still pulling back their spending up to March 2025, with Marketview data showing a 1.4%pa decline over the last 12 months,” Brunsdon said.
“The housing market is starting to turn a corner, but with new listings coming to market faster than they can be sold, house prices are unlikely to rocket up this year. Softer manufacturing, construction, and retail activity means a harder hit for more urban parts of the country.”
Employment falls across regions, but South Island fares better
Job losses were widespread, with employment falling 1.6% year-on-year nationwide. Auckland (-2.2%) and Wellington (-2.3%) recorded the sharpest drops, while regions with stronger ties to agriculture saw smaller declines.
“With a stronger primary sector focus, the South Island is doing comparatively better on the jobs front, and Otago Region leads the pack, with just a 0.2%pa decline in employment.”
Early signs of a turning point
Despite ongoing pressure, there are signs the economic slowdown may be bottoming out. Job advertisements have plateaued, and interest rate cuts are slowly working their way through the economy.
“We continue to see small, tentative signs that the economy is at a turning point. The number of job ads has started to plateau, suggesting a turning point in the labour market,” Brunsdon said.
“Still-falling interest rates will continue flowing through to households this year, but many will continue playing it safe with an uncertain labour market, as the unemployment rate remains high. Economic recovery in 2025 will be starting with a whimper, rather than a roar.”
Westpac and ASB still expect the Reserve Bank to cut the OCR in May, but noted that recent increases in inflation expectations could limit the scope for further easing — a potential headwind for households and businesses hoping for relief.
