Little momentum was recorded within New Zealand’s economy for the first half of 2025.This was shown in the Fortnightly Economic Update by the Treasury. The report indicated a 0.9% fall in the economy’s gross domestic product (GDP) during the June quarter, reversing the 0.9% growth recorded in the March quarter. Apart from seasonal and measurement issues, Treasury economists argue that there is more spare capacity within the economy than they previously estimated.
Regardless of the economy’s weak performance, a moderate recovery expected for the September quarter
Increased household consumption, strong export income, and growth in card spending are all supporting expanded economic activity.Trade statistics indicate a recovery in export volumes, particularly in the weeks after a decline earlier in the year.
Concerns around New Zealand’s long-term fiscal sustainability are the backdrop for Treasury’s Economic Update. In a separate commentary, Cullen, as New Zealand’s ex-finance minister, flagged the ‘superannuation challenge, which Cullen stated would need to be dealt with in a timely manner to prevent the challenge from impacting the country’s finances. Cullen stressed the need for gradual, and likely politically difficult, changes in other policy areas such as the retirement age and KiwiSaver to help mitigate the financial impacts of New Zealand Superannuation in the decades to come.
The Treasury’s report indicates that the Reserve Bank might lower the Official Cash Rate (OCR) again, following the disappointing GDP figures. Cuts to the OCR could exceed the anticipated 50 basis points and lower interest rates could stimulate the stalled construction sector and household spending. The construction sector has been affected by delayed monetary policy.
The New Zealand Treasury regarding interest rates:
“Interest rates have fallen rapidly in recent months, although their full impact has yet to filter through the economy.”
Among the sectors that the Treasury examined, the domestic economy showed mixed results
Goods-producing sectors, particularly construction and manufacturing, performed poorly. The drop in the BNZ-BusinessNZ Performance of Manufacturing Index after the U.S. tariff announcement equated the manufacturing sector’s performance to that of the March quarter. Consumer spending appears to be responding to lower interest rates, as evidenced by the retail sector’s growth for the third consecutive quarter and increasing trade.
Addressing the unprecedented demographic changes and heightened macroeconomic challenges will demand urgent attention, as Cullen’s long-term fiscal assessment has been trying to communicate.
“Addressing the unprecedented demographic changes we face requires gradual adjustment over time, not big bang pyrotechnics.”
He believed that the longer periods of no change are taken, the greater the impact on those who live after us. “I would prefer gradual adjustment over time to the big bang pyrotechnics,” he states, which captures his essence, advocating for reforms focusing on security, opportunity, and balance.
Signs of easing have emerged, but Australia’s labor markets are more stable
The OECD has stated that slower global growth during the second half of 2025 will be affected by the increasing tariffs and weaker labor markets of the U.S. and China.
One of the most important proposals is the gradual increase in the retirement age and making KiwiSaver, which is New Zealand’s retirement savings scheme, mandatory for all potential workers with larger contribution rates. He also mentioned a withdrawal tax in KiwiSaver to balance the cost of superannuation, which was also identified as politically hot.
Although unemployment rose 0.1% to 4.3%, Australia’s job market is still historically high, and this is a time of uncertainty, the Treasury’s update and the commentary from Cullen reinforce that short-term economic performance is seamlessly connected to long-term fiscal policy. Although strong fiscal policy for long-term economic performance is in place, enforcement of policy for immediate economic performance will be the biggest challenge New Zealand will face in restoring balance.