Peter Nicholl
The year is nearly over and in terms of New Zealand’s economic performance in 2025 and most people will say thank heavens for that.
Peter Nicholl
A number of things that happened during the year were expected to lead to economic growth picking up. First, the Reserve Bank lowered its Official Cash Rate six times and it finished the year at 2.25 per cent, its lowest level since May, 2022.
Second, export prices for some of our most important exports, such as dairy products and meat, were high. Third, tourism numbers increased, especially from Australia, helped by a sharp fall in the New Zealand-Australia exchange rate. Fourth, despite the government’s rhetoric, the level of government expenditure did not fall.
Despite these strong tail winds, the economy appeared to stay flat for most of the year. One reason for this is that there are long lags in some of these policy areas. Some of the impact of the Reserve Bank’s cash rate reductions early in 2025 had still not worked through to mortgage rates by December because of the impact is only felt when a mortgage is renewed. Also, the devaluation against the Australian dollar only occurred in the latter part of the year.
Then there is data lag. When I was writing this column on Sunday the latest gross domestic product data we had was for the June quarter. That data for that quarter was terrible – a fall of 0.9 per cent for the quarter. This was a bigger fall than most had expected and it had a significant negative impact on confidence. The data for the September quarter will come out on Thursday – the day this paper is published.
Piggy bank.
Most commenators are expecting the figure will be a good one and will show that the recovery that we have been expecting for some time has actually been underway for several months. The Department of Statistics also revises the past data each time they put out new data. It is possible that they will revise the June quarter data up a bit meaning the quarter wasn’t as bad as we were first told.
I was a policy-maker in the Reserve Bank and in the Central Bank of Bosnia for over 30 Years. Data issues always loomed large. You never know for sure where the economy will go in the future. You do the best forecasts you can – but they are still forecasts. You can’t be sure where the economy is today as it takes several months for some of the key data to become available.
The fact that most economic data gets revised also means that you can’t be sure you know where the economy has been in the recent past. The positive tail winds I listed at the beginning are still blowing. The economy should therefore perform better in 2026 than it has in 2025. When the September quarter data comes it is likely to show the recovery has already started. That’s my cheerful thought for Christmas.
