'Still struggling across the country' as recession recovery drags on
Kiwibank’s latest Annual Regional Note reveals New Zealand’s economic recovery remains uneven, with a widening performance gap between the North and South Islands and persistent signs of recession in many regions.
“The further south you go, the more optimistic people are,” said Kiwibank chief economist Jarrod Kerr (pictured). “So, you think about Northland and Taranaki and Gisborne, they've gone backwards over the last year. And you think further south, you know, going to Otago and Canterbury, they're actually doing a lot better.”
Southland, Otago lead; Wellington and Northland lag
Southland and Otago topped the regional performance table with scores of five out of 10, boosted by a building boom and a rebound in international tourism. The national average score lifted from three to four, RNZ and 1News reported.
Wellington’s economic mood remained subdued, despite its score rising from three to four.
“Wellington is just more pessimistic,” Kerr said. “It’s gone through a lot in recent years. You can see it in their activity, you can see it in the housing market. You can see it in the economy, the city has been brought to its knees and it's been struggling to shake the pessimistic vibe.”
He also highlighted broader North Island challenges: “If you look across the regions, some of them have gone backwards and others are improving but it's not good.”
Taranaki recorded the steepest employment drop at -8%, while Northland saw a double-digit decline in building consents.
‘Crawling out of recession’
“We’re really crawling out of this recession rather than regaining our footing and looking to grow from here,” said Kerr. “We’re still struggling across the entire country.”
Despite small gains in consumer sentiment and housing stability, Kiwibank said “house prices have only lifted by half a percent” since the Reserve Bank began cutting rates in August 2024.
“In many regions, they’re still flat or falling,” Kerr said.
Retail sales remained below decade averages in most areas. Wellington posted the sharpest drop at -3.3%, though modest improvements were noted in Waikato, Northland, and Bay of Plenty.
Consumers were still cautious.
“They’re rebuilding balance sheets, not rushing to the shops just yet,” Kerr said.
Kerr urges RBNZ to step on the gas
Kerr called on the Reserve Bank to provide meaningful economic stimulus. “We think the risk, if anything, is that inflation falls too far and falls below 2% because the economy is so weak,” he said. “So, job done on the inflation front, it's time to stimulate growth.”
Kerr said the RBNZ should “go from having their foot firmly on the brake, to putting it in neutral, to actually putting their foot on the accelerator,” 1News reported.
He advocated for a cut to the official cash rate from 3.25% to 2.5%.
Kerr also compared New Zealand’s performance with Australia’s: “Our unemployment rate is over 5% and theirs is pretty close to 4%.”
He attributed this in part to more aggressive RBNZ rate hikes.
“We had a really bad recession last year, which the Reserve Bank openly orchestrated… The Australians didn't orchestrate a recession,” Kerr said.
Outlook: Recovery delayed to 2026?
Kiwibank had previously suggested 2025 would bring economic relief, but Kerr said that timeline is now shifting.
“We are halfway through the year and, yes, things are better but only by a little bit,” he said. “We’re hoping it takes off in the second half of this year as more and more people refix on to lower rates. Then it's more of a 2026 story now.”
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