The big ‘but' in our slow economic recovery

Newsroom

25-06-2025

By the time our quarterly figures are out, they're three months old.
And recent global instability is making them look very mouldy.
While there were shoots of hope when the data was crunched last week – including a slightly better-than-expected lift in Gross Domestic Product – we are about to be hit by what economists like to call 'headwinds'. In this case, those headwinds are war in the Middle East, rising petrol prices, an unstable Kiwi dollar and the effect of America's tariffs.
Kiwibank economists say we're still crawling out of the deep hole we fell into last year … 'and unfortunately, we may be crawling for some time longer'.
Other commentators have pointed out that the figures are showing two economies. The picture is fairly rosy if you're a dairy farmer, not so good if you're in the city struggling to pay your bills.
But even that narrative has been contradicted by yesterday's 'subdued' employment confidence figures, which show poor confidence in dairying-intensive regions such as Waikato and Taranaki.
And unlike the traditional picture, this time farmers are not lifting up the rest of the country, where people are struggling with issues such as food inflation.
Today on The Detail we talk to Kiwibank senior economist Mary Jo Vergara to make sense of the numbers, and try to peek into the future to get a sense of where we're going.
She says external factors such as trade wars and actual wars are an added risk to the outlook.
'We'll feel the impact through how markets react to this,' she says.
'We've already seen oil surge in the last two weeks – it's up around 20 percent since the start of the month – and with this conflict that just escalated over the weekend we could see oil prices take another leap higher. There'll be a risk-aversion play with a flight to safety among investors dumping equities and moving into safe havens like gold or the US dollar, so we could see the Kiwi fall off the back of this.'
Vergara says New Zealand has seen really good progress in the past couple of years pulling down inflation, going from 7.3 percent in the June 2022 quarter, down to about 2.5 percent.
'Now there's risk that inflation accelerates this year, and we could see it reaching the top of [the Reserve Bank's] target band.'
And while the March quarterly figures out last week depicted a strong start to the recovery coming out of recession last year, 'the more timely economic data indicators that are coming out are showing that growth might not be repeated in the quarter we're in'.
'We might see a slowdown in economic activity in the June quarter.'
People aren't out there spending, and the hospitality sector in particular is suffering.
Vergara says uncertainty stalls growth and we are very much influenced by global trade disruption, which is spreading across many sectors.
'It's another reason why we need more interest-rate relief from the Reserve Bank, to add a bit more certainty in this uncertain time.'
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