Southern regions lead cautious spring recovery as economy stabilises

New data from Westpac New Zealand’s Regional Roundup suggests the economy may finally be emerging from its “long hard winter,” with early signs of stabilisation in several regions.

Senior economist Satish Ranchhod (pictured) said feedback from Westpac teams nationwide indicates conditions remain subdued but are “no longer going backwards.”

“In some parts of the country, we’re seeing early signs that those wintery conditions are starting to thaw, with several businesses reporting signs of a modest lift in demand, albeit from a low base,” Ranchhod said.

The report comes shortly after the Reserve Bank slashed the official cash rate by 50 basis points to 2.5%, its lowest level in over three years. The aggressive move—one of the largest cuts since the easing cycle began—signals that further reductions may be on the way as the central bank prioritises recovery over lingering price pressures.

South Island remains the bright spot

Rural and southern regions continue to outperform the rest of the country.

“Rural regions, especially those in the south with large dairy sectors, are seeing firmer conditions than elsewhere,” Ranchhod said.

High dairy and meat prices are underpinning incomes and spending across Southland, Canterbury, and Otago. Otago remains the standout performer, buoyed by agricultural strength and a surge in tourism spending around Queenstown. Construction and business investment are also lifting, supported by lower interest rates and the government’s Investment Boost policy.

In Southland, farmgate gains have translated into one of the strongest labour markets in the country, with employment up nearly 2% and house prices rising 4% over the year.

Urban centres still in a chill

Conditions remain tougher in major cities. Auckland businesses continue to report weak demand, especially across hospitality and discretionary services, though FMCG sales are holding up. Unemployment has levelled off at around 6%.

In Wellington, a slowdown in public-sector hiring and cost-of-living pressures are weighing on confidence. Many firms have reduced staff through attrition, and hospitality operators continue to face “tough trading conditions.”

Mixed picture in regional North Island

Waikato and Bay of Plenty are seeing steady trading but only gradual recovery. Dairy and horticulture remain key bright spots, while construction and manufacturing stay subdued.

In Gisborne and Hawke’s Bay, strong orchard and apple export revenues are supporting local agribusiness after cyclone recovery, but retail and hospitality sectors remain under pressure.

Further south, Taranaki and Manawatū-Whanganui firms linked to rural production are busier, while retail and residential construction remain sluggish.

Labour markets stabilising, cost pressures easing

Across the country, job shedding has slowed and businesses are more optimistic about hiring.

“With economic conditions stabilising in recent months, far fewer firms told us that they have been shedding staff than was the case earlier in the year,” Ranchhod said.

Employers say staff turnover is down as workers stay put, and skilled candidates are easier to find. Meanwhile, cost pressures are moderating, though firms still face higher rates and insurance bills.

Confidence highest in dairy regions

Consumer confidence remains strongest in dairy-intensive South Island areas, while optimism is lowest in Wellington and Nelson/Tasman/Marlborough/West Coast, reflecting tougher trading conditions there.

Westpac’s “Economic Temperature” gauge shows activity warming modestly from winter lows, with the South leading the recovery. Ranchhod said the overall tone is one of cautious improvement:

“It’s been a long hard winter for the economy… but businesses are telling us they’re not going backwards anymore,” the Westpac economist said.

Read the full Westpac report here.

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