New Zealand Institute of Economic Research (Inc)
Media Release, 25 February 2025
For immediate release
NZIER Quarterly Predictions, March 2025
The continued decline in interest rates has supported confidence in the New Zealand economy. In particular, firms are feeling optimistic about an improvement in general economic conditions and demand in their own business ahead. This is despite the fact that lower interest rates have yet to translate into a meaningful recovery in activity.
Households are feeling cautiously optimistic. Although lower interest rates have reduced mortgage repayments for some borrowers, with further reductions expected this year, the weaker labour market is weighing on the recovery in consumer confidence. Nonetheless, we are beginning to see a pick-up in retail spending, which we expect will continue over the coming year as many households face further reductions in mortgage repayments as they reprice onto lower mortgage rates.
The softening in the New Zealand labour market has delayed the recovery in the household sector. Cutbacks in the public and private sectors are reducing employment prospects, which is encouraging New Zealanders to move overseas. In particular, the more resilient Australian labour market has encouraged many New Zealanders to move across the Tasman. We expect net migration outflows to Australia will continue to support a slowing in net migration inflows for much of 2025.
Lower migration-led population growth has implications for longer-term demand in the New Zealand economy. Overall, we forecast annual average GDP growth to lift to around 1.5 percent over the coming year, as lower interest rates support a modest recovery in demand across a range of sectors in the New Zealand economy. Although lower interest rates should support stronger construction demand, this recovery in construction will likely be slowed by softer population growth. Geopolitical and trade tensions also continue to present downside risks to the growth outlook.
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by another 50 basis points at the February Monetary Policy Statement (MPS), as widely expected and in line with its guidance in November. Recent developments suggest continued excess capacity in the New Zealand economy, which provides scope for further interest rate decreases.
We continue to expect further monetary policy easing to be more measured than that seen in recent months. We forecast further 25 basis point OCR cuts in the April and May meetings.
Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.
For further information, please contact:
Christina Leung, Deputy Chief Executive (Auckland) & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985