Wellington, NZ – New Zealand’s economy is charting a course of cautious recovery in late 2025, buoyed by modest growth but simultaneously weighed down by a challenging job market, international trade pressures, and instability within its central bank.
After officially emerging from a recession with a 0.7% GDP increase in the final quarter of 2024 and 0.8% growth in the first quarter of 2025, signs of life have returned. However, the optimism is tempered by persistent economic headwinds that have left many New Zealanders struggling.
The most significant domestic challenge is the labour market. The unemployment rate climbed to 5.2% in August, a level not seen since the aftermath of the 2020 COVID-19 lockdowns. This figure, which the Reserve Bank of New Zealand had hoped would be a peak, now casts doubt on a swift recovery. An estimated 158,000 people are out of work, with tens of thousands more considered underemployed, seeking more hours than they can find. This subdued job market is limiting new hiring and has dampened consumer confidence.
In response, the government led by prime minister Christopher Luxon has announced a series of reforms aimed at stimulating investment and competition. In a significant policy shift, the government is partially reversing a 2018 ban on foreign home ownership. As of September, wealthy overseas investors holding the "Active Investor Plus" visa can now purchase or build a single residential property valued at NZ$5 million or more.
To address the high cost of living, legislation is set to be introduced in November to fast-track the approval process for new supermarkets, a move designed to break the dominance of the country’s main grocery chains and lower prices for consumers.
Furthermore, a new foreign investment agency, Invest New Zealand, has been established as a separate Crown entity. Its mandate is to attract foreign direct investment, with a particular focus on boosting productivity and innovation in the science and technology sectors.
These initiatives are set against a backdrop of fiscal prudence. The 2025 budget saw a reduction in the operating budget and focused spending on core areas like health and education, with limited new cost-of-living relief.
Adding to the economic complexity are external pressures and internal institutional shifts. The United States has imposed tariffs on key New Zealand exports like meat and dairy, which escalated to 15% in August and could cost exporters an estimated NZ$900 million. The government is actively engaged in discussions with U.S. officials to address the trade barriers.
Domestically, the national carrier, Air New Zealand, reported a drop in pre-tax profit to NZ$189 million for the year ending June 2025, citing global engine maintenance issues and weakened domestic demand.
Compounding the uncertainty is a leadership shake-up at the Reserve Bank of New Zealand. Chairman Neil Quigley resigned abruptly on August 29, following the departure of former governor Adrian Orr in March over budget disputes. The successive resignations have raised questions about stability at the crucial institution tasked with managing monetary policy.
While bright spots like a booming agricultural sector and signs of falling interest rates provide some hope, New Zealand’s economic path remains delicate. The effectiveness of the government's new strategies in revitalizing the job market and overcoming trade headwinds will be critical in determining the strength and sustainability of the recovery.